content page report of the auditor-general 129 employment factories annual financial statements for...

Sheltered Employment FactoriesAnnual Financial Statements for the year ended 31 March 2008

Content Page

Report of the Auditor-General 129

Report of the Accounting Officer 133

Balance Sheet 135

Income Statement 136

Statement of Changes in Equity 137

Cash Flow Statement 138

Summary of Accounting Policies 139

Notes to the Annual Financial Statements 143

Detailed Income Statement 149

1 April 2007 - 31 March 2008128

Annual Report

Report of the Auditor-General to Parliament on the Financial Statements of theSheltered Employment Factories for the year ended 31 March 2008

REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS ANDPERFORMANCE INFORMATION OF THE SHELTERED EMPLOYMENT FACTORIES FOR THE YEAR ENDED31 MARCH 2008

REPORT ON THE FINANCIAL STATEMENTS

Introduction

1. I have audited the accompanying financial statements of the Sheltered Employment Factories whichcomprise the balance sheet as at 31 March 2008, income statement, statement of changes in equityand cash flow statement for the year then ended, and a summary of significant accounting policiesand other explanatory notes, and the accounting officer’s report, as set out on pages 133 to 148.

Responsibility of the accounting officer for the financial statements

2. The accounting officer is responsible for the preparation and fair presentation of these financialstatements in accordance with the South African Statements of Generally Accepted AccountingPractice and in the manner required by the Public Finance Management Act, 1999 (Act No. 1 of 1999)(PFMA). This responsibility includes:

� designing, implementing and maintaining internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraudor error

� selecting and applying appropriate accounting policies� making accounting estimates that are reasonable in the circumstances.

Responsibility of the Auditor-General

3. As required by section 188 of the Constitution of the Republic of South Africa, 1996 read with section4 of the Public Audit Act, 2004 (Act No. 25 of 2004) (PAA), my responsibility is to express an opinion onthese financial statements based on my audit.

4. I conducted my audit in accordance with the International Standards on Auditing and General Notice616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008. Those standards require that Icomply with ethical requirements and plan and perform the audit to obtain reasonable assurance onwhether the financial statements are free from material misstatement.

5. An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor’s judgement, includingthe assessment of the risks of material misstatement of the financial statements, whether due to fraudor error. In making those risk assessments, the auditor considers internal control relevant to theentity’s preparation and fair presentation of the financial statements in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity’s internal control.

Annual Report

1291 April 2007 - 31 March 2008


6. An audit also includes evaluating the:� appropriateness of accounting policies used� reasonableness of accounting estimates made by management� overall presentation of the financial statements.

7. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for myaudit opinion.

Basis of accounting

8. The trading entity’s policy is to prepare financial statements in accordance with the South AfricanStatements of Generally Accepted Accounting Practice and in a manner required by the PFMA, as setout in note 1 to the financial statements.

Opinion

9. In my opinion, the financial statements present fairly, in all material respects, the financial position ofthe Sheltered Employment Factories as at 31 March 2008 and its financial performance and cash flowsfor the year then ended, in accordance with the South African Statements of Generally AcceptedAccounting Practice and in the manner required by the PFMA

Emphasis of matter

Without qualifying my opinion, I draw attention to the following matter:

Highlighting critically important matters presented or disclosed in the financial statements

10. As disclosed in note 15.2 to the financial statements, SEF incurred irregular expenditure ofR9, 5 million during the year under review.

Significant uncertainties

11. Included in the provision for impairment was an amount of R570 209 that related to chequesfraudulently cashed by unknown parties. We were not able to determine the recoverability of theseamounts. The SEF has reported the matter to the South African Police Services and the third partiesinvolved.

OTHER MATTERS

Without qualifying my opinion, I draw attention to the following matters that relate to my responsibilitiesin the audit of the financial statements:

Matters of governance

12. The PFMA tasks the accounting officer with a number of responsibilities concerning financial and riskmanagement and internal control. Fundamental to achieving this is the implementation of certainkey governance responsibilities, which I have assessed as follows:

1 April 2007 - 31 March 2008130

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OTHER REPORTING RESPONSIBILITIES

REPORT ON PERFORMANCE INFORMATION

13. I have reviewed the performance information as set out on page 41.

Responsibility of the accounting officer for the performance information

14. The accounting officer has additional responsibilities as required by section 40(3)(a) of the PFMA toensure that the annual report and audited financial statements fairly present the performanceagainst predetermined objectives of the trading entity.


15. I conducted my engagement in accordance with section 13 of the PAA read with General Notice 616 of2008, issued in Government Gazette No. 31057 of 15 May 2008.

16. In terms of the foregoing my engagement included performing procedures of an audit nature toobtain sufficient appropriate evidence about the performance information and related systems,processes and procedures. The procedures selected depend on the auditor’s judgement.

Audit findings (performance information)

17. The findings relating to the performance information of the Sheltered Employment Factories are asfollows and will also be contained in the department’s audit report on performance information as itis currently managed, controlled and reported under the sub-programme within the Department ofLabour.

Lack of systems for generating performance information.

18. It was not possible to obtain sufficient appropriate audit evidence in relation to the performanceinformation of the Sheltered Employment Factories, as the system used for generating information

Annual Report

1311 April 2007 - 31 March 2008

Matter of governance Yes No

Audit committee

The trading entity had an audit committee in operation throughout the financial year. ��

The audit committee operates in accordance with approved, written terms of reference. ��

The audit committee substantially fulfilled its responsibilities for the year, as set out in section 77 of the PFMAand Treasury Regulation 3.1.10/27.1.8.

��

Internal audit

The trading entity had an internal audit function in operation throughout the financial year. ��

The internal audit function operates in terms of an approved internal audit plan. ��

The internal audit function substantially fulfilled its responsibilities for the year, as set out in TreasuryRegulation 3.2/27.2. ��

Other matters of governance

The annual financial statements were submitted for auditing as per the legislated deadlines section 40 of thePFMA for departments and constitutional institutions.

��

The financial statements submitted for auditing were not subject to any material amendments resulting fromthe audit. ��

No significant difficulties were experienced during the audit concerning delays or the unavailability ofexpected information and/or the unavailability of senior management. ��

The prior year's external audit recommendations have been substantially implemented. ��

1 April 2007 - 31 March 2008132

Annual Report


was not adequate.

APPRECIATION

19. The assistance rendered by the staff of the Sheltered Employment Factories during the audit issincerely appreciated.

Pretoria

31 July 2008

Annual Report

1331 April 2007 - 31 March 2008

Sheltered Employment FactoriesReport of the Accounting Officer for the year ended 31 March 2008

Nature of operat�ons

The Sheltered Employment Factories (SEF) were established in 1943 to provide employment for peoplewith mental and physical disabilities that prevented them from entering the open labour market due tothe nature of their afflictions. Of the 1 100 factory workers currently employed, some 80% are mentallychallenged. The factories are open to all races.

The factories have operated without enabling legislation since inception, except for a Cabinet Memoran-dum, written in 1956.

There are currently 12 factories across the country in seven provinces. Income for the factories is gener-ated from sales of manufactured goods ranging from wood and metal furniture, hospital commodities,linen, bedding, protective clothing, garments, upholstery, bookbinding and screen printing. The incomefrom sales, supplemented by transfers from the Department of Labour covers the operating expenses ofthe factories.

It is the vision of the factories to develop options for an appropriate legal and corporate form for the en-tity and a transformation plan that will align with Government’s National Integrated Disability Strategy.

Results of operat�ons

The results of the operations are summarised in the Income Statement and the Statement of Changes inEquity.

Reg�stered office (Under the ausp�ces of the Department of Labour)

221 Moreleta Street, Silverton, 0184

Account�ng Officer

The Auditor-General will continue as Auditor of the Sheltered Employment Factories.

SCOPA Resolut�ons

Reference to previous audit report andSCOPA resolutions

Subject Findings/progress

SCOPA report Supply Chain

No competitive bids. There are limited local suppliers of major raw materials.

A composite advertisement was published in majornewspapers inviting prospective suppliers of allmaterials to register on the database.

As in the past there are always at least three quotesobtained for any purchase from known suppliers.

A detailed set of specifications have been compiled forsubmission to the Department of Labour’s SubtenderCommittee for approval to publish in the GovernmentTender Bulletin.

Evaluated and approved suppliers will be captured onthe data base.

1 April 2007 - 31 March 2008134

Annual Report

Sheltered Employment FactoriesReport of the Accounting Officer for the year ended 31 March 2008

Appro�al

The annual Financial Statements have been approved by the Accounting Officer.

L KettledasActing Director-General of Labour

30 May 2008

Reference to previous audit report andSCOPA resolutions

Subject Findings/progress

No valid transport contract. A transport agreement has been in place for eightyears.

A tender was advertised in August 2007. Adjudicationwas completed in March 2008 by the Department ofLabour’s Supply Chain Management Unit, but therecommendation was that it must be re-advertised.

The current arrangement with the transporter wasextended to 31 March 2008 and thereafter on a monthby month basis with the proviso that a calendarmonths notice will be given of the intention toterminate.

SCOPA report Misstatement of fixedassets

Availability of skilled staff. A project to restructure the factories is under way withassistance from the National Treasury.

Population of organisational structures will beprogressed when the transformation plan is approved.

Impairment of redundantassets.

The SEF is now fully compliant with SA GAAP.

A new fixed asset register has been compiled and allassets bar-coded.

A policy is in place to reconcile fixed assets on aquarterly basis and to identify assets to be impaired.

Redundant/obsolete fixed assets have been identifiedand provisions made in the annual FinancialStatements for impairment.

A depreciation policy was developed and is beingapplied and asset values are correctly reported in theannual Financial Statements.

Annual Report

1351 April 2007 - 31 March 2008

Sheltered Employment FactoriesBalance Sheet for the year ended 31 March 2008

Notes 2007/08 2006/07

R'000 R'000

Assets

Non-current assets

Property, plant and equipment 1 10 367 13 133

Current assets 27 822 40 577

Inventories 2 18 759 18 082

Trade and other recievables 3 8 815 11 487

Cash and cash equivalents 4 248 11 008

Total assets 38 189 53 710

Equity and liabilities

Equity 21 056 47 186

Accumulated funds 21 056 47 186

Non-current liabilities

Finance lease liabilities 5 242 206

Current liabilities 16 891 6 318

Short-term portion of finance lease liabilities 5 88 70

Trade and other payables 6 16 803 6 248

Total equity and liabilities 38 189 53 710

Sheltered Employment FactoriesIncome Statement for the year ended 31 March 2008

1 April 2007 - 31 March 2008136

Annual Report

Notes 2007/08 2006/07

R'000 R'000

Revenue 7 38 970 45 028

Cost of sales (87 424) (83 095)

Gross deficit (48 454) (38 067)

Administrative expenses (4 233) (2 441)

Other operating expenses (12 359) (9 354)

Operating deficit before interest income and Parliamentaryallocation

8 (65 046) (49 862)

Finance charges (44) (27)

Interest income 129 389

Other income 23 -

Parliamentary allocation 38 808 45 460

Net surplus/(deficit) for the year (26 130) (4 040)

Annual Report

1371 April 2007 - 31 March 2008

Sheltered Employment FactoriesStatement of Changes in Equity for the year ended 31 March 2008

Notes 2007/08Accumulated

funds

2006/07Total

R'000 R'000

Balance at 1 April 2006 51 226 51 226

Net deficit for the year (4 040) (4 040)

Balance at 31 March 2007 47 186 47 186

Net deficit for the year (26 130) (26 130)

Balance at 31 March 2008 21 056 21 056

Sheltered Employment FactoriesCash Flow Statement for the year ended 31 March 2008

1 April 2007 - 31 March 2008138

Annual Report

Notes 2007/08 2006/07

R'000 R'000

Cash flow from operating activities (10 409) (5 151)

Cash receipts from customers 41 663 43 293

Cash paid to suppliers and employees (90 965) (94 266)

Cash deficit from operations 9 (49 302) (50 973)


Interest received 129 389

Finance charges (44) (27)

Cash flow from investing activities (405) (1 767)

Purchase of fixed assets (405) (1 767)

Cash flow from financing activities 54 95

Increase in finance lease liabilities 142 189

Repayment of finance lease liabilities (88) (94)

Net increase/(decrease) in cash and cash equivalents (10 760) (6 823)

Cash and cash equivalents at beginning of year 11 008 17 831

Cash and cash equivalents at end of year 248 11 008

Annual Report

1391 April 2007 - 31 March 2008

The principal accounting policies applied in the preparation of these Annual Financial Statements are setout below. These policies have been consistently applied to all the years presented, unless otherwisestated.

1 Bas�s of preparat�on

The Financial Statements of the Sheltered Employment Factories (SEF) have been prepared in accordancewith South African Statements of Generally Accepted Accounting Practice (SA GAAP). The FinancialStatements have been prepared on the historical cost basis except where disclosed otherwise in the notesbelow.

1.1 New account�ng standards and Internat�onal F�nanc�al Report�ng Interpretat�ons Comm�ttee (IFRIC) �nterpretat�ons

a) Standards, amendments and �nterpretat�ons effect��e �n 2008

IFRS 7, ‘Financial Instruments, Disclosures’ , and the complementary amendment to (IAS 1, ‘Presentation ofFinancial Statements Capital Disclosures’ , introduces new disclosures relating to financial instruments anddoes not have any impact on the classification and valuation of the SEFs financial instruments, or thedisclosures relating to trade and other receivables and trade and other payables.

b) Standards, amendments and �nterpretat�ons effect��e �n 2008, but not rele�ant

The following standards, amendments and interpretations to published standards are mandatory foraccounting periods beginning on or after 1 January 2007 but they are not relevant to the SEFs’ operations:

� IFRS 4, “Insurance contracts” � IFRIC 7, “Applying the restatement approach under IAS 29, Financial reporting in

hyperinflationary economies” � IFRIC 9, “Re-assessment of embedded derivatives”.

IFRIC 8, “Scope of IFRS2”, requires consideration of transactions involving the issuance of equityinstruments, where the identifiable consideration received is less than the fair value of the equityinstruments issued in order to establish whether or not they fall within the scope of IFRS 2. This standarddoes not have any impact on the SEFs’ Financial Statements.

IFRIC 10, Interim financial reporting and impairment”, prohibits the impairment recognised in an interimperiod on goodwill and investments in equity instruments and in financial assets carried at cost to bereversed at a subsequent balance sheet date. This standard does not have any impact on the SEFs’Financial Statements.

c) Standards, amendments and �nterpretat�ons to ex�st�ng standards that are not yet effect��e and ha�e not been early adopted by the SEF.

The following standards, amendments and interpretations to existing standards have been published andare mandatory for the SEFs’ accounting periods beginning on or after 1 January 2008 or later periods, butthe SEF has not early adopted them:

IAS 23 (Amendments), “Borrowing costs” (effective from 1 January 2009). The amendment to the standardis still subject to endorsement by the European Union. It requires an entity to capitalise borrowing costsdirectly attributable to the acquisition, construction or production of a qualifying asset (one that takes asubstantial period of time to get ready for use or sale) as part of the cost of that asset.

IFRS 8, “Operating segments” (effective from 1 January 2009). IFRS 8 replaces IAS 14 and aligns segmentwith the requirements of the US standard SFAS 131. “Disclosures about segments of an enterprise andrelated information”. The new standard requires a “management approach”, under which segmentinformation is presented on the same basis as that used for internal reporting purposes. The SEF will applyIFRS 8 from 1 January 2009. The expected impact is still being assessed in detail by management, but itappears likely that the number of reportable segments, as well as the manner in which the segments arereported, will change in a manner that is consistent with the internal reporting provided to the chiefoperating decision maker.

Sheltered Employment FactoriesSummary of Accounting Policies for the year ended 31 March 2008


1 April 2007 - 31 March 2008140

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d) Interpretat�ons to ex�st�ng standards that are not yet effect��e and not rele�ant for the SEFs’ operat�ons

The following interpretations to existing standards have been published and are mandatory for the SEFs’accounting periods beginning on or after 1 January 2008 or later periods but are not relevant for the SEFs’operations:

IFRIC 13, “Customer loyalty programmes” (effective from 1 July 2008), IFRC 1 clarifies that where goods orservices are sold together with a customer loyalty incentive (for example, loyalty points or free products),the arrangement is a multiple-element arrangement and the consideration receivable from the customeris allocated between the components of the arrangement in using fair values. IRRIC 13 is not relevant tothe SEFs’ operations because none of the SEFs’ factories operate any loyalty programmes.

IFRIC 14, “IAS 19 – The limit on a defined benefit asset, minimum funding requirements and theirinteraction” (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 onthe amount of the surplus that can be recognised as an asset or liability may be affected by statutory orcontractual minimum funding requirement.

2 S�gn�ficant account�ng judgements and est�mates

The preparation of Financial Statements in conformity with SA GAAP requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgement in the process of applyingthe SEFs’ accounting policies. Estimates and judgements are continually evaluated and are based onhistorical experience and other factors, including expectations of future events that are believed to bereasonable under the circumstances. The SEFs make estimates and assumptions concerning the future.The resulting accounting estimates will, by definition, rarely equal the related actual results. The areasinvolving a higher degree of judgement or complexity, or areas where assumptions and estimates aresignificant to the annual Financial Statements, are disclosed below.

Critical judgements in applying the SEFs’ accounting policies

Inventory

Work in progress is valued, based on the stage of completion of the goods, adding a percentage to thedirect costs to account for overheads. These percentages range from 8.7% (2007, 8.7%) to 120% (2007,120%) of the direct costs. The total costs are considered to be less than the net realisable value of theinventory.

Critical accounting estimates and assumptions

Depreciation

During each financial year, management reviews the assets within property, plant and equipment toassess whether the useful lives and residual values applicable to each asset are appropriate.

3 Property, plant and equ�pment

The SEFs does not own any land or buildings. All plant and equipment is stated at historical cost lessdepreciation. Historical cost includes expending that is directly attributable to the acquisition of theitems.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, asappropriate, only when it is probable that future economic benefits associated with the item will flow tothe SEFs and the cost of the item can be measures reliably. The carrying amount of the replaced part isderecognised. All other repairs and maintenance are charged to the Income Statement during thefinancial period in which they are incurred.

Depreciation on assets is calculated using the straight-line method to reduce their costs to their residualvalues over their estimated useful lives, as follows:


Annual Report

1411 April 2007 - 31 March 2008

Minor assets are written-off in the year of purchase.

The assets’ residual values and useful lives are reviewed and adjusted if appropriate, at each reportingdate.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount andare recognised under other income in the Income Statement.

4 Impa�rment of non-financ�al assets

Assets that are subject to depreciation are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. An impairment loss isrecognised for the amount by which the assets carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For thepurposes of assessing impairment, assets are identified at the lowest levels for which there are separatelyidentifiable cash flows (cash-generating units). Non-financial assets other than goodwill that sufferedimpairment are reviewed for possible reversal for the impairment at each reporting date.

5 In�entor�es

Inventories are stated at the lower of cost and net realisable value. Net realisable value represents theestimated selling price in the ordinary course of business less any costs of completion and costs to beincurred in marketing, selling and distribution. Cost is determined on the first-in, first-out method. Thecost of finished goods and work in progress comprises raw materials, direct labour, other direct costs andrelated production overheads allocated as a percentage of direct costs. Provision for obsolete stock isdetermined at 100% of the value of inventories that have not been used in production or sold for a periodlonger than 12 months.

6 F�nanc�al assets

The SEFs classifies its financial assets as “loans and receivables”. Management determines the classificationof its financial assets at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market. They are included in current assets, except for maturities greater than 12months after the reporting date. These are classified as non-current assets. Loans and receivables aredescribed as “trade and other receivables” in the Balance Sheet.

Financial assets acquired or disposed are recognised on the date which the SEFs commits to thetransaction. Financial assets are initially recognised at fair value plus transaction costs. Financial assets arederecognised when the rights to receive cash flows from the financial assets have expired or have beentransferred and the SEFs has transferred substantially all risks and rewards of ownership. Loans andreceivables are carried at amortised cost using the effective interest method.

7 Trade and other rece��ables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortisedcost using the effective interest method, less provision for credit losses. A provision for credit losses isestablished when there is objective evidence that the SEFs will not be able to collect all amounts dueaccording to the original terms of receivables. Significant financial difficulties of the debtor, default ordelinquency in payments are considered indicators that the trade and other receivables are impaired. Theamount of the provision is the difference between the asset’s carrying amount and the present value ofestimated future cash flows, discounted at the effective interest rate. The amount of the provision isrecognised in the Income Statement within “Administrative expenses”. When a trade receivable is

Plant and machinery 10 to 15 years

Computer equipment 3 years

Office machines and equipment 8 to 10 years

Furniture and fittings 10 to 15 years

Appliances 5 to 8 years

Leased assets 3 to 5 years.


1 April 2007 - 31 March 2008142

Annual Report

uncollectible, it is written off against the provision account. Subsequent recovery of amounts previouslywritten off are credited against operating costs in the Income Statement.

8 Cash and cash equ��alents

Cash and cash equivalents consist of cash in hand and cash at banks. For the purpose of the Cash FlowStatement cash and cash equivalents comprise cash on hand and cash held at banks.

9 Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently measured at amortisedcost using the effective interest method.

10 Ret�rement benefits

Payments to defined contribution plans are charged as an expense as they fall due. Payments made to theState-managed Retirement Benefit Scheme are dealt with as defined contribution plans where the SEFs’obligations under the scheme are equivalent to those arising in a defined contribution retirement benefitplan. The SEFs are also liable for other post retirement benefits, such as accumulated leave, to which theworkers become entitled to at retirement.

11 Account�ng for leases

Leases of property, plant and equipment where SEFs assumes substantially all the benefits and risks ofownership are classified as finance leases. Finance leases are capitalised at the estimated fair value of theleased assets, or, if lower, the present value of the underlying lease payments. The corresponding rentalobligations, net of finance charges, are included in non-current liabilities. The interest element of thelease installment is charged to the Income Statement over the lease period. The property, plant andequipment thus acquired are depreciated over the term of the lease.

Leases of assets, under which all the risks and benefits of ownership are effectively retained by the lessor,are classified as operating leases. Payments made under operating leases are charged to the IncomeStatement on a straight-line basis over the period of the lease. When an operating lease is terminatedbefore the lease period has expired, any payments required to be made to the lessor by way of penalty isrecognised as an expense in the period in which termination takes place.

12 Re�enue recogn�t�on

Revenue comprises the fair value of the consideration received or receivable for the sale of goods andservices in the ordinary course of the SEFs’ activities. Revenue is recognised to the extent that it isprobable that the economic benefits will flow to the SEFs and the revenue can be reliably measured.

Sale of goods

The SEFs operate from various manufacturing locations from which manufactured goods including woodand metal furniture, linen and bedding, upholstery and bookbinding are sold. Sale of goods is recognisedwhen a product is delivered to the customer.

Interest income

Interest is recognised on a time proportion basis, taking account of the principal outstanding and theeffective rate over the period to maturity, when it is determined that such income will accrue to the SEFs.

13 Parl�amentary allocat�ons

Parliamentary allocations are recognised at their fair value where there is a reasonable assurance that theallocation will be received.

14 Related part�es

All transactions and balances with national departments of government are regarded to be transactionswith related parties and disclosed separately in the Notes to the Financial Statements.

Annual Report

1431 April 2007 - 31 March 2008

2007/08 2006/07

R'000 R'000

2. Inventories

Raw materials 16 471 13 189

Work in progress 1 911 2 016

Finished goods 4 665 5 708

Provision for obsolete stock (4 288) (2 831)

18 759 18 082

3. Trade and other receivables

Trade debtors 22 357 23 264

Sundry debtors 5 3

Unpaid cheques 570 570

VAT 134 324

Provision for credit losses (14 251) (12 674)

8 815 11 487

1. Property, plant and equipment

Officemachinery

andequipment

Plant andmachinery

Computerequipment

Furnitureand fittings

AppliancesLeasedassets

Total

R’000 R’000 R’000 R’000 R’000 R’000 R’000

Year ended 31 March 2008

Opening carryingamount

336 11 248 798 465 24 262 13 133

Additions 18 167 40 21 17 142 405

Disposals - (1) (1) - (1) (2) (5)

Impairment ofassets

(21) (1 203) (4) - - - (1 228)

Depreciation (59) (1 332) (378) (59) (12) (98) (1 938)

Closing carryingamount

274 8 879 455 427 28 304 10 367

Cost 458 14 307 1 453 730 63 577 17 588

Accumulateddepreciation

(184) (5 428) (998) (303) (35) (273) (7 221)

Year ended 31 March 2007

Opening carryingamount

256 11 754 500 410 15 161 13 096

Additions 127 658 681 97 14 190 1 767

Disposals - - - - - (5) (5)

Depreciation (47) (1 164) (383) (42) (5) (84) (1 725)

Closing carryingamount

336 11 248 798 465 24 262 13 133

Cost 483 16 037 1 737 709 50 508 19 524

Accumulateddepreciation

(147) (4 789) (939) (244) (26) (246) (6 391)

Leased assets are encumbered by financial lease liabilities. Refer note 5.

Sheltered Employment FactoriesNotes to the Annual Financial Statements for the year ended 31 March 2008

Assets that were no longer functional or useable, being either irreparable or not economically repairable were identified by a formalprocess for impairment and approved by a Disposal Committee. The recoverable amount was based on fair value less costs to cell.Expert knowledge of members of the Disposal Committee was used to determine fair value.


1 April 2007 - 31 March 2008144

Annual Report

2007/08 2006/07

R'000 R'000

Trade debtors have credit terms of 30 days. Credit terms for other receivables are negotiatedon an immediate settlement basis depending on the merits of each receivable.

Movements in the provision for credit losses were as follows:

Opening balance (12 674) (13 753)

Charged to Income Statement (1 577) 1 079

(14 251) (12 674)

Trade debtors and unpaid cheques have been impaired. The other classes within trade andother receivables do not contain impaired items.The maximum exposure to credit risk at the reporting date is the fair value of each class ofreceivable mentioned above. The entity does not hold any collateral as security.

The fair value of trance receivables net of the provision for credit losses is as follows:

Trade receivables 8 676 10 590

As at 31 March 2008, trade receivables of R13,682,000 (2007: R12,674,000)were impaired and provided for. The individually impaired receivablesmainly relate to government debtors, which are in difficult administrativesituations. It was assessed that a portion of the receivables is expected tobe recoverable.

The ageing of these debtors are as follows:

0 – 4 monthsOver 4 months

The carrying amount of the SEFs’ trade and other receivables aredenominated in South African Rands (ZAR)

8 67613 68122 357

10 59012 67423 264

4. Cash and cash equivalents

Bank balances – call account 7 8 504

Bank balances – current account 218 2 481

Petty cash 23 23

248 11 008

All the bank balances are neither past due nor impaired. Analysis by credit quality of bankbalances is as follows:

Balancespayable on

demand

Balancespayable on

demand

Current and call accounts 225 10 985

225 10 985

5. Finance lease liabilities

Opening balance 276 181

New agreements entred 142 189

Repayments (88) (94)

Closing balance 330 276

Short-term portion transferred to current liabilities (88) (70)

Long-term portion transferred to non-current liabilities 242 206

The weighted average effective interest rate is 13,75% (2007: 12,9%) Finance leases are secured by assets with a closing carryingamount of R312,000 (2007: R262,000)


Annual Report

1451 April 2007 - 31 March 2008

2007/08 2006/07

R'000 R'000

7. Revenue

Sale of goods 38 970 45 028

8. Operating deficit before interest income and Parliamentary allocation

Operating deficit before interest income and Parliamentary allocations is derived aftertaking the following into account:

Auditors remuneration 1 199 898

Depreciation 1 938 1 725

Plant and machinery 1 332 1 164

Computer equipment 378 383

Office machines and equipment 59 47

Furniture and fittings 59 42

Appliances 12 5

Leased assets 98 84

Professional services 185 980

Operating lease – Factory rental 199 202

Staff costs 8 090 7 729

6. Trade and other payables

2007/08 2006/07

R'000 R'000

Accruals 99 1 837

Accumulated leave due to staff 1 933 1 948

Prepayments from debtors 318 202

Outstanding cheques 16 8

Sundry creditors 294 297

Trade accruals 250 203

Trade creditors 13 450 822

Unallocated receipts from debtors 16 58

Unpaid cheque control 427 873

16 803 6 248

The credit terms for trade creditors are negotiated on the 30 day settlement basis. Other accrualsare settled on merits.

Reconciliation of minimum lease payments Minimumpayments

Finance charges Present value ofmninmumpayments

Less than one year 123 (35) 88

Two to five years 285 (43) 242

408 (78) 330


1 April 2007 - 31 March 2008146

Annual Report

2007/08 2006/07

R'000 R'000

9. Cash deficit from operations

Reconciliation of net deficit cash deficit from operations:

Net deficit (26 130) (4 040)

Adjusted for:

Depreciation 1 938 1 725

Impairment of assets 1 228 -

Interest income (129) (389)

Financial costs 44 27

(Profit)/loss on disposal of asset (2) 5

Assests written-off 5 -

Parliamentary allocation (38 808) (45 460)

(61 854) (48 132)

Working capital changes:

(Increase)/decrease in inventories (677) (690)

(Increase)/decrease in accounts receivable 2 673 (1 735)

(Decrease)/ increase in accounts payable 10 556 (416)

Cash deficit from operations (49 302) (50 973)

10. Related parties

All national departments of government are regarded to be related parties in accordance with Circular 4 of 2005: Guidanceon the term "State-controlled entities" in the context of IAS24 (AC126) - Related Parties, issued by the South African Instituteof Chartered Accountants. No transaction is implicated simply by the nature or existence of the relationships between theseentities. However, the following transactions and balances were recorded relating to transactions with related parties asdefined above:

2007/08 2006/07

R'000 R'000


Sale of goods to related parties 33 071 41 754

Services provided by related parties 4 331 2 585

SARS - VAT 1 563 1 006

Workersmens Compensation 690 372

UIF 948 827

Telkom 1 120 372

Department - Public Works - 1

Postmaster 10 7

Year-end balances arising from sales of goods to related parties 18 735 21 014

Impairment provision on year-end balances arising from sale of goods to related parties 10 380 10 180

Year-end balances arising from services provided by related parties 789 662

SARS - VAT 696 527

Workersmens Compensation 13 -

UIF - 114

Telkom 80 21

The Comparitive amounts have been adjusted to correct the total of services provided (previously: R5 345 000) and year-endbalances arising (previously: R872 000), to only include related parties as defined by IAS 24(AC 126):Related parties as furtherexplained by SAICA Circular 9, as noted above.


Annual Report

1471 April 2007 - 31 March 2008

2007/08 2006/07

R'000 R'000

11. Contingencies

The SEFs has no contingencies

12. Commitments

Capital commitments

The SEFs has no capital commitments.

Operating lease commitments

The SEFs leases various factory facilities, offices and warehouses under non-cancellable operating lease agreements from theDepartment of Public Works. These leases have indefinite terms.

2007/08 2006/07

The future aggregate minimum lease payments under non-cancellable operating leasesare as follows: R'000 R'000

Not later than one year 199 202

Later than one year and not later than five years 796 808

Later than five years Indefinite Indefinite

13. Defined contribution plan

The SEFs contributes in part of the Temporary Employment Pension Fund (TEPF) for the benefit of employees. The SEFs liability is limited to its contributions.

There are 120 employees (consisting of administrative staff and factory instructors) who are members of the TEPF in which the SEFs contribute 2.75% in every Rand contributed by the employees towards the TEPF

Contributions for the year included in staff costs (note 8) 1500 1449

14. Financial Risk Management

14.1 Credit risk

Financial assets that potentially subject the SEFs to concentrations of credit risk consist principally of trade debtors. Tradecreditors mainly consist of government departments of which surety vests in the National Treasury for any such debts owing.Other debtors comprise private sector trade debtors and staff debtors.

At 31 March 2008 the SEFs did not consider there to be any significant concentration of credit risk that had not beenadequately provided for.

14.2 Interest rate risk

The SEFs are not exposed to significant interest rate risk.

14.3 Maintenance of capital

The primary objective of the SEFs’ capital management is to ensure that it maintains its ability to continue as a going concernand to maintain an optimal structure to reduce the cost of capital. In order to maintain the capital structure, the SEFs arelargely dependent on funding from the Department of Labour through parliamentary allocations, based on an approvedbudget submitted to the Department of Labour.

15. Irregular expenditure

15.1 Reconciliation of irregular expenditure

Opening balance – Previous year 11 167 -

Irregular expenditure – Current year 9 504 11 167

Irregular expenditure awaiting condonement 20 671 11 167

Analysis of awaiting condonement per classification

Current expenditure 9 504 11 167

9 504 11 167

Analysis of awaiting condonement per age classification

Current year 9 504 11 167

Prior year 11 167 -

20 671 11 167


1 April 2007 - 31 March 2008148

Annual Report

2007/08 2006/07

15.2 Irregular expenditure R'000 R'000

Incident Diciplinary stepstaken/criminal proceedings

The transport contract was not awarded as required byTreasury Regulation 16A6.

N/A5 721 6 795

No exemption was approved for deviation from theregulation for procurement of goods as required byTreasury Regulation 16A6.4.

N/A 3 783 4 372

9 504 11 167

Request to grant condonation for the irregular expenditure incurred in procuring raw materials during the 2006/07 and2007/08 financial year was submitted to National Treasury in a letter dated 25 July 2008. The condonation of the irregularexpenditure has not yet been received.

Sheltered Employment FactoriesDetailed Income Statement for the year ended 31 March 2008

Annual Report

1491 April 2007 - 31 March 2008

2007/08 2006/07

R'000 R'000

Revenue 38 970 45 028

Cost of sales (87 424) (83 095)

Gross deficit (48 454) (38 067)

Interest income 129 389

Interest received 34 316

Debtors finance charges 95 73

Other Income 23 -

Commision received 21 -

Profit on disposal 2 -


Total (deficit)/income (9 494) 7 782

Total expenses (16 636) (11 822)

Accumulated leave expense 32 71

Administrative expenses 905 617

Audit fees 1 199 898

Bank charges 112 151

Depreciation 490 560

Finance charges 44 27

Loss on disposal of asset - 5

Impairment of assets 1 228 -

Information technology expenses 138 -

Maintenance and repairs 61 101

Minor assets expenditure 117 185

Provision for impairment of debtors 1 578 (1 079)

Printing and stationary 404 469

Professional services 185 980

Personnel expenditure 8 038 7 729

Project costs expensed 738 -

Telecommunication 1 136 885

Transport and delivery costs 112 75

Travelling costs 119 148

Net (deficit)/surplus for the year (26 130) (4 040)

Content Page

Report of the Auditor-General 150

Report of the Accounting Officer 155

Statement of Financial Performance 163

Statement of Financial Position 164

Cash Flow Statement 165

Statement of Changes in Net Assets 166

Accounting Policies 167

Notes to the Annual Financial Statements 172

Disclosure Notes to the Annual Financial Statements 174

Annexures 176

1 April 2007 - 31 March 2008150

National Skills FundAnnual Financial Statements for the year ended 31 March 2008

Annual Report

REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS ANDPERFORMANCE INFORMATION OF THE NATIONAL SKILLS FUND FOR THE YEAR ENDED 31 MARCH2008

REPORT ON THE FINANCIAL STATEMENTS

Introduction

1. I have audited the accompanying financial statements of the National Skills Fund which include thestatement of financial position as at 31 March 2008, statement of financial performance, andstatement of changes in net assets and cash flow statement for the year then ended, and a summaryof significant accounting policies and other explanatory notes, as set out on pages 155 to 177.

Responsibility of the accounting officer for the financial statements

2. The accounting officer is responsible for the preparation and fair presentation of these financialstatements in accordance with the basis of accounting determined by the National Treasury, as set outin accounting policy note 1 to the financial statements and in the manner required by the PublicFinance Management Act, 1999 (Act No. 1 of 1999) (PFMA) and section 29(1)(c) of the SkillsDevelopment Act, 1998 (Act No. 97 of 1998). This responsibility includes: � designing, implementing and maintaining internal control relevant to the preparation and fair

presentation of financial statements that are free from material misstatement, whether due to fraudor error

� selecting and applying appropriate accounting policies� making accounting estimates that are reasonable in the circumstances.


3. As required by section 188 of the Constitution of the Republic of South Africa, 1996 read with section 4of the Public Audit Act, 2004 (Act No. 25 of 2004) (PAA), my responsibility is to express an opinion onthese financial statements based on my audit.

4. I conducted my audit in accordance with the International Standards on Auditing and General Notice616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008. Those standards require that Icomply with ethical requirements and plan and perform the audit to obtain reasonable assurance onwhether the financial statements are free from material misstatement.

5. An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor’s judgement, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control.

6. An audit also includes evaluating the:� appropriateness of accounting policies used� reasonableness of accounting estimates made by management� overall presentation of the financial statements.

7. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for myaudit opinion.

Basis of accounting

8. The National Skills Fund’s policy is to prepare financial statements on the modified cash basis ofaccounting determined by National Treasury, as set out in the accounting policy note 1 to the financialstatements.

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1511 April 2007 - 31 March 2008

Report of the Auditor-General to Parliament on the Financial Statements andPerformance Information of the National Skills Fund for the year ended 31 March 2008


1 April 2007 - 31 March 2008152

Annual Report

Basis for qualified opinion

9. Commitments

I could not obtain sufficient appropriate audit evidence to confirm the existence, valuation andcompleteness of commitments amounting to R1.544 billion (2007: R 745 million) as per note 14 to theannual financial statements. The Fund’s records did not permit the application of alternative auditprocedures with regard to commitments because of inadequate systems and lack of properdocumentation to support the amount of commitments disclosed.

10. Advances

I was unable to confirm the existence, valuation and completeness of the advances amounting toR10.714 million (2007:R2million) as per note 9 to the annual financial statements. Due to thelimitations in the accounting system and lack of appropriate documentation, I could not performalternative procedures.

Qualified opinion

11. In my opinion, except for the effects of such adjustments, if any, as might have been determined to benecessary had I been able to satisfy myself as to the matters described in the Basis for qualifiedopinion paragraphs, the financial statements present fairly, in all material respects, the financialposition of the National Skills Fund as at 31 March 2008 and its financial performance and cash flowsfor the year then ended, in accordance with the modified cash basis of accounting determined by theNational Treasury, as set out in the accounting policy note 1 to the financial statements and in themanner required by the Public Finance Management Act.

Emphasis of matter

I draw attention to the following matters:

Highlighting critically important matters presented or disclosed in the financial statements

Amendments to the applicable basis of accounting

12. The fund must be listed as a public entity in terms of the Skills Development Act (1999). In terms ofTreasury regulation 28.1.6 a public entity is required to prepare financial statements in accordancewith the South African Statements of General Accepted Accounting Practice. As disclosed in note 19of the financial statements, National Treasury approved the deviation from the prescribed basis ofaccounting in a letter addressed to the fund, date 31 March 2008. Therefore, the entity preparedfinancial statements in accordance with the modified cash basis of accounting.

This exemption was granted for the 2007/08 financial year only. Thereafter, the NSF must ensurecompliance with the appropriate reporting framework for listed public entities.

Irregular expenditure

13. As disclosed in note 21 to the financial statements, irregular expenditure to the amount ofR273.111 million (2007: R279.119 million) was incurred, as the procurement process was not alignedto the supply chain management requirements.

OTHER MATTERS

I draw attention to the following matters that relate to my responsibilities in the audit of the financialstatements:

Internal controls

14. Section 51(1)(a)(i) of the PFMA states that the accounting officer must ensure that the National SkillsFund has and maintains effective, efficient and transparent systems of financial and risk management


Annual Report

1531 April 2007 - 31 March 2008

and internal control. The table below depicts the root causes that gave rise to the inefficiencies in thesystem of internal control, which led to the qualified opinion. The root causes are categorisedaccording to the five components of an effective system of internal control. In some instancesdeficiencies exist in more than one internal control component.

Non-compliance with applicable legislation

15. PFMA/Regulations

� Section 16A3.1 of the Treasury Regulations – Procurement process was not followed forexpenditure incurred under the Social Development Initiative Funding Window.

16. Skills Development Levies Act, 1998 (Act No. 97 of 1998) (SDL Act)

� Sections 6(3) and 6(4) of the Skills Development Levies Act – Interest was charged on amountsoverpaid to the NSF. The SDL Act does not provide for the payments of interest on amounts overpaid.

Matters of governance

17. The PFMA tasks the accounting officer with a number of responsibilities concerning financial and riskmanagement and internal control. Fundamental to achieving this is the implementation of certain keygovernance responsibilities, which I have assessed as follows:

Reporting item Control environment

Risk assessment Control activities Information andcommunication

Monitoring

Commitments ��

Advances ��

Control environment: establishes the foundation for the internal control system by providing fundamental discipline andstructure for financial reporting

Risk assessment: involves the identification and analysis by management of relevant financial reporting risks to achievepredetermined financial reporting objectives.

Control activities: policies, procedures and practices that ensure that management’s financial reporting objectives are achievedand financial reporting risk mitigation strategies are carried out.

Information and communication: supports all other control components by communicating control responsibilities forfinancial reporting to employees and by providing financial reporting information in a form and time frame that allows people tocarry out their financial reporting duties.

Monitoring: covers external oversight of internal controls over financial reporting by management or other parties outside theprocess; or the application of independent methodologies, like customised procedures or standard checklists, by employeeswithin a process.


Audit committee

• The National Skills Fund had an audit committee in operation throughout the financial year. ��

• The audit committee operates in accordance with approved, written terms of reference. ��

• The audit committee substantially fulfilled its responsibilities for the year, as set out in section 77 of the PFMA and Treasury Regulation 3.1.10

��

Internal audit

• The National Skills Fund had an internal audit function in operation throughout the financial year. ��

• The internal audit function operates in terms of an approved internal audit plan. ��

• The internal audit function substantially fulfilled its responsibilities for the year, as set out in Treasury Regulation 3.2 ��

1 April 2007 - 31 March 2008154

Annual Report

OTHER REPORTING RESPONSIBILITIES

REPORT ON PERFORMANCE INFORMATION

18. I have reviewed the performance information as set out on pages 43 to 48.

Responsibility of the accounting officer for the performance information

19. The accounting officer has additional responsibilities as required by section 55(2)(a) of the PFMA toensure that the annual report and audited financial statements fairly present the performance againstpredetermined objectives of the public entity.


20. I conducted my engagement in accordance with section 13 of the PAA read with General Notice 616 of2008, issued in Government Gazette No. 31057 of 15 May 2008.

21. In terms of the foregoing my engagement included performing procedures of an audit nature toobtain sufficient appropriate evidence about the performance information and related systems,processes and procedures. The procedures selected depend on the auditor’s judgement.

22. I believe that the evidence I have obtained is sufficient and appropriate to provide a basis for the auditfindings reported below.

Audit findings (performance information)

23. The findings relating to the performance information of the National Skills Fund are as follows and willalso be contained in the departments audit report on performance information as it is currentlymanaged, controlled and reported under the sub-programme within the Department of Labour.

Lack of systems for generating performance information

24. It was not possible to obtain sufficient appropriate audit evidence in relation to the performanceinformation of the National Skills fund, as the system used for generating information was notadequate.

APPRECIATION

25. The assistance rendered by the staff of the National Skills Fund during the audit is sincerelyappreciated.

Pretoria31 July 2008



Other matters of governance

The annual financial statements were submitted for audit as per the legislated deadlines section 55 of the PFMA. ��

The financial statements submitted for auditing were not subject to any material amendments resulting from theaudit.

��

No significant difficulties were experienced during the audit concerning delays or the unavailability of expectedinformation and/or the unavailability of senior management.

��

The prior year's external audit recommendations have been substantially implemented. ��

SCOPA resolutions have been substantially implemented. ��

National Skills FundReport of the Accounting Officer for the year ended 31 March 2008

Annual Report

1551 April 2007 - 31 March 2008

Report by the Account�ng Officer to the Execut��e Author�ty and Parl�ament of theRepubl�c of South Afr�ca.

1. General re��ew of the state of affa�rs

The primary objective of the National Skills Fund (NSF) is stipulated in the Skills Development Act, namelythat the money in the NSF may be used only for the projects identified in the National Skills DevelopmentStrategy (NSDS) as national priorities or for such other projects related to the achievement of thepurposes of the Act as the Director-General of the Department of Labour determines. Given thecommitment of government to act in a more concerted fashion, the flexibility given to theDirector-General in the latter part of the afore mentioned clause of the Act, allows the Department totake into account other government policy/priority imperatives in the allocation of these funds. Thesemight include the Human Resource Development (HRD) Strategy; growth, employment and investmentstrategies and social development priorities.

The Minister of Labour launched the first NSDS in February 2001. The Strategy seeks to address thestructural deficiencies of the labour market, and develop a workforce that can respond to the moderneconomic environment, taking into account the equity considerations that are peculiar to South Africa.The second phase of the Strategy, NSDS 2005-2010 was launched in March 2005, and has five objectives,namely:

� Prioritising and communicating critical skills for sustainable growth, development and equity � Promoting and accelerating quality training for all in the workplace � Promoting employability and sustainable livelihoods through skills development � Assisting designated groups, including new entrants to participate in accredited work, integrated

learning and work-based programmes to acquire critical skills to enter the labour market andself-employment

� Improving the quality and relevance of provision.

The following equity targets have been adopted for the beneficiaries of learning programmes across thefive objectives:

� 85% black (includes Indians, Coloureds and Africans) � 54% female � 4% people with disabilities.

Under each of the five objectives of the NSDS, the expected contribution of the NSF towards theachievement of the NSDS targets are broadly indicated under the levers linked to each indicator. Theidentification of NSF funding windows is directly derived from the levers, as well as the cross-cuttingNSDS principles.

The NSDS objectives and targets identify broad areas in which interventions should happen. Some ofthese objectives and targets clearly fall within the core functions of the Sector Education and TrainingAuthorities (SETAs) and should be financed from the 80% of the skills levy transferred to them, but otherscould arguably extend (in part or in full) beyond this into the sphere of national priority. However, itshould be noted that these objectives and targets do not specify the sector, province or locality that mustbe targeted for funding from the NSF. To be able to get closer to determining which sectors orbeneficiaries groups to target, the NSF needs to consider key macro-economic strategies and othernational imperatives of government. In this case Provincial Skills Growth and Development Strategies(PGDS), Sector Skills Plans (SSPs), National Scarce Skills List and Provincial Skills Plans (PSPs) need to beconsidered.

During the Medium Term Expenditure Framework (MTEF) period a large part of the programmatic work of


1 April 2007 - 31 March 2008156

Annual Report

the NSF will be directed by the objectives set in the NSDS 2005-2010.

Key pol�cy de�elopment and leg�slat��e changes

Over the MTEF period the NSF will continue to pursue goals and targets set in the NSDS for 2005-2010.These are actualised through various training interventions flowing from the following funding windows:

Social Development Initiatives Funding Window

This NSF funding window is in support of NSDS indicator 3.1 namely to finance training wherebyunemployed or under-employed people are equipped with skills to promote their employability andsustainable livelihoods, including training for Expanded Public Works Programmes (EPWP).

In the case of the Social Development Initiatives Funding Window, the Department of Labour’s provincialoffices are the disbursing agents. They have an established delivery model based on evaluatingproject-linked training applications against set criteria. The said criteria include considerations aroundwhether the proposed project, which the training is intended for, is part of the Provincial Skills Plan,Integrated Rural Development Strategy, Urban Renewal Strategy, Local Economic Development Strategyand whether the beneficiaries will be placed in such projects once training is completed.

ABET (adult basic education and training) Funding Window

The purpose of the ABET funding window is to support the NSDS Indicator 3.3, namely to promoteemployability and sustainable livelihoods through skills development. This would be achieved throughthe provision of resources to allow 100 000 unemployed people to participate in ABET level programmesby 2010, of which at least 70% must achieve ABET level 4.

Critical Skills Support Funding Window

This funding window is in support of NSDS indicator 1.2 namely that information on critical skills is widelyavailable to learners. Furthermore, the funding window also supports the NSDS indicator 4.1 namely toassist designated groups including new entrants to participate in accredited work-integrated learning andwork-based programmes to acquire critical skills to enter the labour market and self-employment.

Provisioning Support Funding Window

This NSF funding window is in support of NSDS indicator 2.4 and 5.3 namely that at least 500 enterprisesachieve a national standard of good practice in skills development approved by the Minister of Labour, aswell as to improve the quality of the services delivered by skills development institutions and thoseinstitutions responsible for the implementation of the National Qualification Framework (NQF) in supportof the NSDS.

Industry Support Programme Funding Window

This NSF funding window is in support of NSDS indicator 2.6 namely to annually increase the number ofpeople who benefit from incentivised training for employment or re-employment in new investmentsand expansion initiatives.

Informal Sector Support Funding Window

Objective 3 of the NSDS speaks to the promotion of employability and sustainable livelihoods throughskills development. In line with the afore mentioned, the NSF through this funding window will supportthe NSDS indicator 3.2 through skills development support to non-levy paying enterprises,


Annual Report

1571 April 2007 - 31 March 2008

Non-governmental Organisations (NGOs), Community Based Organisations (CBOs) andCommunity-based Co-operatives.

Secondly, the funding window will support NSDS indicators 4.3 and 5.2, whereby new entrants will beassisted to establish sustainable new ventures by providing training and mentoring in terms of Objective4. In respect of the latter, the NSF will top-up SETA discretionary new venture creation grants.

Constituency Capacity Building and Advocacy Funding Window

The Department of Labour is dependent on the various stakeholders in the area of skills development, forthe successful implementation of the NSDS. This new NSF funding window is therefore primarily aimed atcapacity building of constituency organisations represented on the National Skills Authority in order thatthey may discharge of their mandate related to the NSDS and the Skills Development Act.

Special Projects Funding Window

These NSF funding windows is in support of NSDS indicators in general, as well as the cross-cutting NSDSprinciples, and include:

� promotion of the NSDS� research and impact studies related to the NSDS � supplementary support to people with disabilities such as assistive devices to access learning and

training material in order that they may derive full benefits of skills development initiatives.

Discretionary and Innovation Projects Funding Window

This funding window gives expression to one of the provisions of the Skills Development Act by givingthe Director-General of Labour the discretion to fund any other projects in support of the objectives ofthe Act.

Strategic Projects

The Strategic Projects is not a funding window but rather an implementation model that allows the use ofintegrated projects to achieve goals and targets set for the NSF in the NSDS. The model uses the criteriaand budget across a number of selected funding windows and is primarily targeted at projectssupporting implementation of Provincial Growth and Development Strategies.

Legislation

The National Skills Fund (NSF) was established in 1999 in terms of the Skills Development Act, 1998. Therevenue sources for the Fund are:

� 20% of the skills development levies as contemplated in the Skills Development Levies Act � the skills development levies collected and transferred to the Fund, in terms of the Skills

Development Levies Act, in respect of those employers which do not fall under the jurisdiction of aSETA

� money appropriated by Parliament for the Fund � interest earned on investments � donations to the Fund � money received from any other source.

The National Skills Authority (NSA) is a statutory advisory body to the Minister of Labour on the NationalSkills Development Strategy. The NSA is constituted from a cross section of stakeholders from


1 April 2007 - 31 March 2008158

Annual Report

government, organised business, organised labour, education and training providers and communityconstituency representatives.

Outcomes

Social Development Initiatives

From April 2007 to March 2008 the NSF trained a total of 101 924 unemployed people through variousskills intervention programmes. Beneficiaries were drawn from key government projects such asExtended Public Works Programme (EPWP), Working for Water and other provincial economic initiatives.Of the total trained 71 054 (70%) were placed in projects that allowed them to consolidate the skillsgained through practical work.

ABET

Under the ABET programme the NSF targeted unemployed beneficiaries with low levels of literacy. A totalof 19 987 unemployed learners went through a number of ABET programmes at Levels 1 to 4 during thereporting period. At the same time the NSF began work around preparing for the second phase of thisprogramme and projects which increased the intake with 49 000 learners.

Critical Skills Programme

Under this programme the NSF assists new entrants to the labour market through a range of accreditedand work-based programmes to improve their entry into formal employment or self-employment.Programmes under this category are implemented primarily with SETAs and the NSF contributed to theoverall output of 56 344 learners entering accredited and work-based learning programmes. The NSF alsoprovided bursaries to assist a further 1 179 and 1 194 undergraduate and post graduate studentsrespectively.

Industry Support Programme

This programme benefited a total of 2 368 new workers through training grants under the incentivesscheme for new investments.

Informal Sector Support Programme

The programme benefits non-levy paying enterprises primarily NGOs, CBOs, and Community basedCooperatives. For the reporting period a total of 3 783 beneficiaries have been selected to participate invarious capacity building and mentoring initiatives that started in the last quarter of the 2007/08 financialyear.

Strategic Projects Programme

A total of 7 400 learners have been recruited under this programme and benefited from a number ofinterventions including learnerships, apprenticeships, bursaries and internships. The programme involvesprojects in the nine provincial governments that will be implemented until December 2009.

The other funding areas of the NSF do not have specific targets but provide important support to theobjectives of the NSDS 2005-2010.

Reason for under-spending

Most of the training projects span over a number of financial years that include an initial set-up phasebefore active implementation starts. The NSF expects that spending rates will improve over the MTEF


Annual Report

1591 April 2007 - 31 March 2008

period when most of the projects enter their final stages of implementation.

2. Ser��ces rendered by the Nat�onal Sk�lls Fund

The NSF primarily provides funding and policy development in order to meet the objectives of theNational Skills Development Strategy (NSDS) for 2005-2010. These objectives of the NSDS are thefollowing:

� Prioritising and communicating critical skills for sustainable growth, development and equity � Promoting and accelerating quality training for all in the workplace � Promoting employability and sustainable livelihoods through skills development � Assisting designated groups, including new entrants to participate in accredited work, integrated

learning and work-based programmes to acquire critical skills to enter the labour market andself-employment

� Improving the quality and relevance of provision.

The above objectives are achieved through the training initiatives funded under the funding windowsdescribed in the preceding paragraphs.

3. Capac�ty constra�nts

Over the last two financial years the NSF has lost a number of skilled project managers to otherdepartments. The NSF is reviewing its delivery model and this will include paying particular attention toadequate staffing.

4. Ut�l�sat�on of donor funds

None

5. Trad�ng ent�t�es/publ�c ent�t�es

None

6. Organ�sat�ons to whom transfer payments ha�e been made

None

7. Publ�c /pr��ate partnersh�ps

None

8. Corporate go�ernance arrangements

The Director-General of Labour is the Accounting Officer of the Fund in terms of the Public FinanceManagement Act, 1999 (PFMA) and must:

� control the Fund � keep a proper record of all financial transactions, assets and liabilities of the Fund � as soon as possible after the end of each financial year, ending on the prescribed date, prepare

accounts of the income and expenditure of the Fund for the year and a balance sheet of its assets andliabilities as at the end of that year.

The Director-General is thus ultimately responsible and accountable to the Minister and Parliament for

money spent from the NSF. Within the framework of the Director-General’s delegation of authority, theday to day operations of the NSF are managed by the Senior Executive Manager of the National SkillsFund.

The Department has initiated a review of the governance and accountability arrangements of the Fund, inline with the recommendations of the Standing Committee on Public Accounts adopted by Parliament inFebruary 2007.

R�sk management

The activities of the NSF are covered within the comprehensive risk assessment done by the Directorateof the Internal Audit of the Department of Labour.

Fraud pre�ent�on

The activities of the NSF are covered within the Good Governance Policy, which includes fraudprevention, compiled by the Directorate of the Internal Audit of the Department of Labour.

Internal Aud�t and Aud�t Comm�ttee

The internal audit function for the NSF is provided by the Directorate of the Internal Audit of theDepartment of Labour.

The established Audit Committee of the Department of Labour also addresses the activities related to theNational Skills Fund.

F�nanc�al management

Separate expenditure accounts for the NSF have been created on the Basic Accounting System (BAS) andhave been introduced with effect from 1 April 2004. A separate database has been created for the NSFand was implemented with effect from 1 April 2006. The NSF is now in the process of implementing SAPas an accrual accounting solution.

Other PFMA requ�rements

The NSF forms part of the Programme of the Employment and Skills Development Services of theDepartment of Labour and as such report through the structures and processes of the Department in sofar as compliance with the PFMA, is concerned, namely:

� Basis of Accounting- The Auditor-General recommended that the financial statements of the NSF beprepared on an accrual basis as the entity fulfils the description of a public entity. The Departmentagreed with this recommendation and has begun implementing the recommendation, however, theentity did not have the necessary capacity to present its financial statements on an accrual basis. Forthis reason Treasury permission was requested and obtained to present the 2007/08 financialstatements of the NSF on a modified cash basis

� NSF Strategic Plan – is derived from the Strategic Plan of the Department of Labour, which has beenapproved by the Executive Authority and tabled in the Legislature in terms of Treasury Regulation5.2.1.

� Quarterly reporting – forms part of the quarterly reporting process on performance against theStrategic Plan of the Department of Labour. Furthermore the NSF submits quarterly reports on itscash-flow to National Treasury in the prescribed format and timeframes

1 April 2007 - 31 March 2008160


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Annual Report

1611 April 2007 - 31 March 2008


� Actual revenue and expenditure projections – the relevant information that forms part of the MTEF& ENE processes are submitted to the Chief Financial Officer of the Department of Labour in theprescribed format and timeframes

� Annual report – information with regard to the NSF are covered within the Annual Report of theDepartment of Labour

� Annual report, financial statements and audit reports – these reports form part of the AnnualReport of the Department of Labour.

9. D�scont�nued act��t�es

None

10. New/proposed act��t�es

None

11. Asset management

The NSF does not own assets as it is a programme under the Department of Labour.

12. E�ents after the report�ng date

None

13. Other

Completeness of re�enue

Skills Development Levy (SDL) transfers are recognised when it is probable that future economic benefitwill flow to the NSF and these benefits can be measured reliably. This occurs when the Department ofLabour either makes an allocation or payments, whichever comes first, to the SETA/NSF, as required bysection 6 (5) of the Skills Development Levies Act, 1999 (Act No.9 of 1999).

The SDL Transfer is measured at the fair value of the consideration received.

The Department of Labour is responsible for the first high-level verification to detect any materialoccurrences of levy payments variances, which is communicated to the NSF and South African RevenueService (SARS) for further investigation and rectification.

As a control measure, the NSF verifies the 20% levy allocation based on the monthly certificate issued bySARS on receipt of funds in its banking account. The monthly allocations are tested for consistency withprior period trends and variances are further investigated. Any unjustified variances are communicated tothe Department of Labour for further investigation with SARS, being the appointed levy collection agent.

14. Performance Informat�on

The NSF is currently a programme within the Department of Labour and its performance information isprovided within the framework of the Department.

� Quarterly monitoring of performance is derived from the annual work plan of the NSF and ENEtargets and reported via Department of Labour reports

1 April 2007 - 31 March 2008162


Annual Report

� Reports of the NSF are discussed in the Department’s senior management meetings at various levelsincluding the Mid-Term Review which is a meeting chaired by the Minister. This meeting reviewsperformance on the first six months of the work plan and directs corrective action to be taken tobring performance on track

� The NSF is also part of the Annual Review and planning workshops (Executive managers up to thelevel of the Minister) where annual performance is discussed and planning for the new year isundertaken. This information form part of the annual report of the NSF.

15. SCOPA resolut�ons

Approval

The Annual Financial Statements have been approved by the Accounting Officer.

Mr. L Kettledas

Acting Director-General of Labour

Date: 30 May 2008

Reference topre��ous aud�t

report andSCOPA

resolut�ons

Subject F�nd�ngs/progress

SCOPA report –5 of 2006.

Structure andaccountability ofthe National SkillsFund.

The Department of Labour has taken a decision to list the NSF as a public entity.Necessary steps have been taken to start the process of listing.


Accountingprocesses:Commitments.

The NSF has implemented a system of grant confirmation in which third parties arerequested to confirm agreement with the terms and conditions of grants - first atapproval and secondly during changes to the project (which changes requireapproval by the NSF).All supporting documentation for the figures reflected as commitments is available.

A process to implement SAP as an accrual accounting solution has already started.The due-date for implementation of the first phase is 1 August 2008. The SAP systemwill provide valuable management information to monitor commitments.


Bank and Cash. A separate database for the NSF on BAS and a separate bank account have beenapproved by National Treasury and were implemented effective from 1 April 2006.


Accounts payableand receivable.

The necessary corrective measures have been implemented to ensure that accountspayable and receivable are properly managed, and outstanding advances areregularly followed up. A detailed review of the balances on both accounts wasinstituted and compared against funds recovered from claims and actual advancesgranted. The remaining balance on accounts receivable (R 1,3 million) has beenwritten-off after a thorough assessment of the probability of recovering the debt.


Funds not utilised— MANDAB.

Amended MANDAB regulations have been published on 1 December 2006 which willfacilitate the allocation/spending of remaining uncommitted funds through thestandard Social Development Funding Window (SDFW) disbursement mechanisms.The amendment to the regulations has eliminated the need for a separate MANDABSteering Committee, as the Provincial Skills Development Forum will adjudicate onthe allocation of the remaining funds, in line with the SDFW business rules.

Annual Report

1631 April 2007 - 31 March 2008

Notes 2007/08 2006/07

R'000 R'000

Revenue 1 562 413 1 286 150

Skills development levy income 1 1 256 861 1 065 686

State contribution 2 44 799 42 666

Investment income 3 249 525 145 829

Other income 4 11 228 31 969

Expenses 710 211 716 863

Operating expenses 5 641 726 644 415

Collection costs to SARS 52 471 57 685

Management fees and bank charges paid 730 500

2% Administration costs 12 902 11 782

Realised loss on investment 6 2 382 -

Amounts written off 7,9 - 2 481

Surplus for the year 852 202 569 287

National Skills FundStatement of Financial Performance for the year ended 31 March 2008

National Skills FundStatement of Financial Position as at 31 March 2008

1 April 2007 - 31 March 2008164

Annual Report

Notes 2007/08 2006/07

R'000 R'000

Assets

Current assets 3 094 146 2 241 944

Cash and cash equivalents 8 65 430 19 735

Advances 9 10 714 2

Investments 10 3 018 002 2 221 845

Loans receivables 11.1 - 362

Total assets 3 094 146 2 241 944

- -

Total liabilities 3 094 146 2 241 944

Net assets

Accumulated funds 3 094 146 2 241 944

Opening balance 2 241 944 1 672 657

Net surplus for the year 852 202 569 287

Total net assets 3 094 146 2 241 944

National Skills FundCash Flow Statement for the year ended 31 March 2008

Annual Report

1651 April 2007 - 31 March 2008

Notes 2007/08 2006/07

R'000 R'000

Cash flows from operating activities

Receipts 1 312 888 1 140 321

Net (increase/decrease) in working capital (806 507) (571 835)

Current payments (710 211) (716 863)

Cash generated from operations 12 (203 830) (148 377)

Interest received 3 249 525 145 829

Net cash flows from operating activities 45 695 (2 548)

- 362

Net cash flows from investing activities - 362

Decrease/(increase) in long-term loans

Net (decrease)/increase in cash and cash equivalents 45 695 (2 186)

Cash and cash equivalents at beginning of year 19 735 21 921

Cash and cash equivalents at end of year 8 65 430 19 735

National Skills FundStatement of Changes in Net Assets for the year ended 31 March 2008

1 April 2007 - 31 March 2008166

Annual Report

Note 2007/08 2006/07

R'000 R'000

Balance at 1 April 2007 2 241 944 1 672 657

Net surplus for the year 852 202 569 287

Balance at 31 March 2008 3 094 146 2 241 944

National Skills FundAccounting Policies for the year ended 31 March 2008

Annual Report

1671 April 2007 - 31 March 2008

The Financial Statements have been prepared in accordance with the following policies, which have beenapplied consistently in all material aspects, unless otherwise indicated. However, where appropriate andmeaningful, additional information has been disclosed to enhance the usefulness of the FinancialStatements.

1. Presentat�on of the F�nanc�al Statements

1.1 Bas�s of preparat�on

The Financial Statements have been prepared on a modified cash basis of accounting, except wherestated otherwise. The modified cash basis constitutes the cash basis of accounting supplemented withadditional disclosure items. Under the cash basis of accounting transactions and other events arerecognised when cash is received or paid.

1.2 Presentat�on currency

All amounts have been presented in the currency of the South African Rand (R) which is also thefunctional currency of the department.

1.3 Round�ng

Unless otherwise stated all financial figures have been rounded to the nearest one thousand Rand (R’000).

1.4 Comparat��e figures

Prior period comparative information has been presented in the current year’s Financial Statements.Where necessary figures included in the prior period Financial Statements have been reclassified toensure that the format in which the information is presented is consistent with the format of the currentyear’s Financial Statements.

2. Re�enue

2.1 Le�y �ncome

In terms of section 3(1) and 3(4) of the Skills Development Levies Act, 1999 (Act no. 9 of 1999), registeredmember employers pay a skills development levy of 1% of the total payroll cost to the South AfricanRevenue Service (SARS), who collects the levies on behalf of the Department of Labour.

20% of skills development levies are paid over to the NSF and 80% to the SETAs. The NSF could not verifythat the SARS has collected all potential skills levy income.

Revenue recognition of levy income represents amounts received from the Department of Labour. Skillsdevelopment levy revenue is acknowledged on the cash basis.

2.2 Interest �ncome

Interest and dividends received are recognised upon receipt of the funds, and no accrual is made forinterest or dividends receivable from the last receipt date to the end of the reporting period. Interest isrecognised as revenue in the Financial Statements of the NSF.


1 April 2007 - 31 March 2008168

Annual Report

2.3 State contr�but�ons

Revenue recognition of State contributions represents transfer payments received from the Departmentof Labour. State contribution is acknowledged on receipt.

2.4 F�nes, penalt�es and forfe�ts

Revenue arising from fines, penalties and forfeits is recognised in the Statement of Financial Performancewhen the cash is received.

3. Current expend�ture

3.1 Payments for the tra�n�ng of unemployed people

The training of unemployed people is undertaken by selected training contractors on the basis of apredetermined course fee per day. Upon completion of training, certified claims are submitted bytraining contractors upon which payments is made.

3.2 Funds allocated to the SETAs for spec�al projects

The NSF allocated funds in respect of Special Projects to the SETAs. If eligible expenses are not incurred,the amount advanced to the SETAs has to be refunded to the NSF.

3.3 Collect�on costs pa�d to SARS

In terms of section 10 (2) of the Skills Development Levies Act, 1999 (Act no. 9 of 1999), theDirector-General must, on a monthly basis as may be agreed between SARS and the Director-General,defray the costs of collection by SARS from the levies paid into the National Skills Fund. The total amountof collection costs, may not exceed 2% of the total amount of the levies collected by SARS.

3.4 NSF 2% Adm�n�strat�on Costs

According to section 28 (2) of the Skills Development Act, 1998, the Director-General approved theutilisation of 2% of the money allocated to the Fund in terms of section 8 (3) (a) of the Skills DevelopmentLevies Act to administer the Fund.

3.5 Short term employee benefits

Short term employee benefits comprise of leave entitlements (capped leave), thirteenth cheques andperformance bonuses. The cost of short-term employee benefits is expensed as salaries and wages in theStatement of Financial Performance when the final authorisation for payments is effected on the system(by no later than 31 March of each year).

Short-term employee benefits that give rise to a present legal or constructive obligation are disclosed inthe Notes to the Financial Statements. These amounts are not recognised in the Statement of FinancialPerformance.

3.6 Goods and ser��ces

Payments made for goods and/or services are recognised as an expense in the Statement of FinancialPerformance when the final authorisation for payments is effected on the system (by no later than31 March of each year). The expense is classified as capital if the goods and services were used on a


Annual Report

1691 April 2007 - 31 March 2008

capital project.

3.7 Interest and rent on land

Interest and rental payments are recognised as an expense in the Statement of Financial Performancewhen the final authorisation for payments is effected on the system (by no later than 31 March of eachyear). This item excludes rental for the use of buildings or other fixed structures.

3.8 F�nanc�al transact�ons �n assets and l�ab�l�t�es

Debts are written off when identified as irrecoverable. No provision is made for irrecoverable amounts.All other losses are recognised when authorisation has been granted for the recognition thereof.

3.9 Fru�tless and wasteful expend�ture

Fruitless and wasteful expenditure is recognised as an asset in the Statement of Financial Position untilsuch time as the expenditure is recovered from the responsible person or written off as irrecoverable inthe Statement of Financial Performance.

3.10 Irregular expend�ture

Irregular expenditure is recognised as expenditure in the Statement of Financial Performance. If theexpenditure is not condoned by the relevant authority it is treated as an asset until it is recovered orwritten off as irrecoverable.

4. Assets

4.1 Cash and cash equ��alents

Cash and cash equivalents are carried in the Statement of Financial Position at cost.

For the purposes of the Cash Flow Statement, cash and cash equivalents comprise cash on hand and bankoverdrafts.

4.2 Prepayments and ad�ances

Amounts prepaid or advanced are recognised in the Statement of Financial Position when the paymentsare made.

4.3 Rece��ables

Receivables included in the Statement of Financial Position arise from cash payments made that arerecoverable from another party.

Revenue receivable not yet collected is included in the Disclosure Notes. Amounts that are potentiallyirrecoverable are included in the Disclosure Notes.

4.4 In�estment

In terms of section 29 (2) of the Skills Development Act, 1998 (Act no. 97 of 1998) any money in the Fundnot required for immediate use is invested with the Public Investment Corporation.

Non-current investments are shown at cost and adjustments are made only where in the opinion of theAccounting Officer, the investment is impaired. Where an investment has been impaired, it is recognisedas an expense in the period in which the impairment is identified.

On disposal of an investment, the difference between the net disposal proceeds and the carrying amountis charged or credited to the Income Statement.

4.5 Loans

Loans are recognised in the Statement of Financial Position at the nominal amount. Amounts that arepotentially irrecoverable are included in the Disclosure Notes.

4.6 Property, plant and equ�pment

4.6.1 Property, plant and equ�pment ut�l�sed by the NSF

The Director-General of the Department of Labour is the Accounting Officer of the Fund in terms of thePFMA and must control the Fund.No provision has been made for property, plant and equipment, as all property, plant and equipmentutilised by the NSF are owned, controlled and disposed of by the Department of Labour.

4.6.2 Property, plant and equ�pment acqu�red by the SETAs for NSF spec�al projects

Property, plant and equipment acquired by the SETAs for NSF special projects are capitalised in theFinancial Statements of the SETAs, as the SETAs controls such assets for the duration of the project. Suchassets could however, only be disposed of in terms of an agreement and specific written instructions bythe NSF.

5. L�ab�l�t�es

5.1 Payables

Recognised payables mainly comprise of amounts owing to other governmental entities. These payablesare recognised at historical cost in the Statement of Financial Position.

5.2 Accruals

Accruals represent goods/services that have been received, but where no invoice has been received fromthe supplier at the reporting date, or where an invoice has been received but final authorisation forpayments has not been effected on the system. Accruals are not recognised in Statement of FinancialPosition as a liability or as expenditure in the Statement of Financial Performance but are included in theDisclosure Notes.

5.3 Comm�tments

Commitments are not recognised in the Statement of Financial Position as a liability or as expenditure inthe Statement of Financial Performance but are included in Annexure A and Disclosure Notes to theFinancial Statements.

1 April 2007 - 31 March 2008170


Annual Report


6. Long-term loans

The loans are secured by mortgage bonds over immovable assets of the borrowers, and are repayableover 20 years.

7. Taxat�on

No provision has been made for taxation, as the NSF is exempt from income tax in terms of section 10 ofthe Income Tax Act.

8. Pro��s�ons

A provision is a liability of uncertain timing or amount. Provisions are not normally recognised under thecash basis of accounting, but are disclosed separately as part of the Disclosure Notes to enhance theusefulness of the Financial Statements.

9. Related party transact�ons

Related parties are departments that control or significantly influence entities in making financial andoperating decisions. Specific information with regards to related party transactions is included in theDisclosure Notes.

10. Key management personnel

Key management personnel are those people having the authority and responsibility for planning,directing and controlling the activities of the Fund. Compensation paid to key management personnelincluding their family members where relevant, is included in the Disclosure Notes.

Annual Report

1711 April 2007 - 31 March 2008

National Skills FundNotes to the Annual Financial Statements for the year ended 31 March 2008

1 April 2007 - 31 March 2008172

Annual Report

2007/08 2006/07

R'000 R'000

1. Skills development levy income

In terms of the Skills Development Act and the Skills Development Levies Act,the following applied during the period under review:

Percentage of payroll payable as a Skills Development Levy 1% 1%

National Skills Fund (20%) 1 256 861 1 065 686

Withheld by the Department of Labour and paid to the SETAs (80%) 5 027 445 4 262 744

Total gross levies contributed by employers 6 284 306 5 328 430

2. State contribution

Transfer payments received from the Department of Labour 44 799 42 666

3. Investment income

Interest – PIC 249 237 145 817

Interest – other 288 12

Total 249 525 145 829

4. Other income

Money received for debts already written off - 39

Unutilised prior year funds received 11 228 31 930

11 228 31 969

5. Operating expenses

Strategic Projects by SETAs 151 974 48 265

Industry Support Programme 35 019 32 837

Innovation and Research 2 867 1 613

Critical Skills Support Programme 62 369 241 512

Social Development Initiatives 289 071 279 119

ABET 64 045 37 811

Provisioning Support 264 1 320

Discretionary and Innovation 25 686 500

Constituency Capacity Building - 145

Special Projects 672 1 293

Informal Sector Support 9 759 -

641 726 644 415

National Skills FundNotes to the Annual Financial Statements for the year ended 31 March 2008

Annual Report

1731 April 2007 - 31 March 2008

2007/08 2006/07

R'000 R'000

6. Realised loss on investment

Interest adjustment not recognised as negative interest but as loss on capitalamount

2 382 -

7. Amounts written off

Fruitless and wastefull expenditure written off - 1 073

Receivables written off - 68

- 1 141

8. Cash and cash equivalents

Bank and cash 65 430 19 735

9. Advances

Advances to training providers for payments of allowances 10 714 1 342

Advances written off - (1 340)

10 714 2

10. Investments with the PIC 3 018 002 2 221 845

11. Receivables

11.1 Current

Short-term portion of long-term loan receivables - 362

12. Cash generated from operations

Surplus for the year 852 202 569 287

Interest received ( 249 525) ( 145 829)

Non-cash movements/working capital changes (806 507) ( 571 835)

(Increase)/decrease in receivables ( 10 712) 3 041

Increase/(decrease) in payables - ( 407)

(Increase)/decrease in other current assets ( 795 795) ( 574 107)

(Increase)/decrease in other non-current assets - ( 362)

Net cash flows from operating activities ( 203 830) ( 148 377)

National Skills FundDisclosure Notes to the Annual Financial Statements

for the year ended 31 March 2008

1 April 2007 - 31 March 2008174

Annual Report

2007/08 2006/07

R'000 R'000

These notes to the Annual Financial Statements are not recognised in the Financial Statements and are disclosed to enhancethe usefulness of the Financial Statements.

13. Key management personnel No of Individuals

Political office bearers*

Officials

Level 16*

Level 14** 1 548 503

548 503

*Compensation are paid by the Department of Labour

**Paid by Department of Labour and claimed back as part of the 2% administration fee

14. Commitments Notes

Approved and contracted Annexure A 1 252 066 744 577

Approved but not yet contracted 291 489 -

Total future expenditure 1 543 555 744 577

15. Related parties Annexure B

Movement of Funds between NSF and related party

Transactions related to projects to be implemented by SETAs 71 429 -

Unutilised prior years funds received (11 270) -

2% Administration cost paid to the Department of Labour 10 911 11 782

71 070 11 782

Balances between NSF and related party

Transactions related to projects to be implemented by SETAs 182 801 -

16. Accrued PIC amounts not recognised in the financial statements

Unrealised Investment losses 1 279 362

17. Accounts receivables

Unspent funds SETA’s 31 730 81 279

Outstanding Levy income (20%) 227 402 191 634

259 132 272 913

18. Accruals

Social Development Funding Window 72 973 30 592

Interdepartmental Claims Personnel Cost 1 537 145

Interdepartmental Claims Other 8 406 -

Other outstanding claims 27 636 3 799

Collection costs to SARS for March 4 490 4 392

115 042 38 928

National Skills FundDisclosure Notes to the Annual Financial Statements


Request to grant condonation for the irregular expenditure incurred during the 2006/07 and 2007/08 financial year with regard tothe training of unemployed persons under the Social Development Initiatives funding window was submitted to National Treasuryin a letter dated 3 March 2008 and 14 July 2008. The condonation of the irregular expenditure has not yet been received.

Annual Report

1751 April 2007 - 31 March 2008

19. Change in Accounting Policies

The Accounting Policies were changed to be in accordance with guidelines issued by National Treasury.

20. Accounting method used

Historically the National Skills Fund was regarded as part of the Department of Labour.Although separate Financial Statements, consisted of a Statement of Financial Performance, Statement ofFinancial Position as well as a Cash Flow Statement were prepared, the results of its operations and its cashflows were prepared in accordance with the guidelines issued by National Treasury for NationalDepartments and the Financial Statements have been prepared on a modified cash basis supplementedwith additional Disclosure Notes on accrual information.

The financial System used by the Department and the National Skills Fund are a cash system of accounting,and no accrual information are presently available from the system.

All accrual information available from registers, or any other method used manually by the National SkillsFund for control purposes are disclosed in separate Disclosure Notes for the year under review.

2007/08 2006/07

21. Provision for doubtful debt R'000 R'000

Notes

Advances 8 - 2

Long-term loans 10 - 362

Total - 364

22. Irregular expenditure

22.1 Reconciliation of irregular expenditure

Opening balance – Previous year 279 119 -

Irregular expenditure – Current year 273 111 279 119

Irregular expenditure awaiting condonement 552 230 279 119

Analysis of awaiting condonement per classification

Current expenditure 273 111 279 119

273 111 279 119

Analysis of awaiting condonement per age classification

Current year 273 111 279 119

Prior year 279 119 -

552 230 279 119

22.2 Irregular expenditure

Incident Diciplinary steps taken/criminal proceedings

No. Cases

Non-compliance to requirements of Supply chain Management N/A

Prior year 15 956 279 119 -

Current year 14 442 273 111 279 119

552 230 279 119

National Skills FundAnnexure A to the Annual Financial Statements


1 April 2007 - 31 March 2008176

Annual Report

Funding WindowApproved and

contracted

Less amounttransferred prior

years

Less amounttransferred

2007/08

Commitmentsreleased/ paid

/cancelled/adjusted during

the year

Commitment tobe transferred

Approved butnot yet

contracted

R'000 R'000 R'000 R'000 R'000 R'000

Social DevelopmentFunding Window

997 240 462 368 273 111 (85 657) 176 104 26 266

Abet Funding Window 103 723 37 811 64 045 (1 867) - 215 224

Critical Skills Support 715 952 395 469 62 369 (104 682) 153 432 -

Provisioning Support 2 640 1 320 264 - 1 056 -

Industry SupportProgramme

160 163 55 610 12 757 (30 823) 60 973 19 709

Informal Sector Support 31 005 - 9 759 - 21 246 -

Constituency CapacityBuilding and Advocacy

- - - - - -

Special Projects 1 293 1 293 - - - -

Innovation and Research 11 748 7 043 2 867 (1 838) - -

Discretionary andInnovation

43 560 500 25 686 (4 714) 12 660 30 290

Total Funding Windows 2 067 324 961 414 450 858 (229 581) 425 471 291 489

Strategic Projects 1 124 558 127 241 151 974 (18 748) 826 595 -

Total 3 191 882 1 088 655 602 832 (248 329) 1 252 066 291 489

Notes:The expenditure on the Social Development Funding Window excludes the payments of allowances to trainees.

National Skills FundAnnexure B to the Annual Financial Statements


Annual Report

1771 April 2007 - 31 March 2008

Related party transactionsTransactions with SETAsContracts in terms of projects to be implemented by SETAs

Related party Amount transferred prior

yearsAmount transferred dur-

ing 2007/08Amount payable

R'000 R'000 R'000

Learnerships

BANKSETA 15 206 - -

CETA 14 211 11 036 -

CHIETA 19 046 - -

ETDPSETA 3 125 - -

FOODBEV 4 961 - -

HWSETA 14 212 1 143 -

ISETT 7 513 - -

LGWSETA (LGSETA) 70 100 - -

PAETA (AGRISETA) 17 500 - -

PSETA 97 238 - -

SERVICES 22 321 - -

NSF CSS Programme

BANKSETA 4 052 20 259 -

CHIETA 4 406 7 210 33 138

ESETA 4 211 - 12 789

FASSET - 14 324 16 351

FIETA 2 863 - 19 753

FOODBEV 5 520 - 17 607

INSETA 6 737 5 582 1 156

MAPPSETA - 2 517 18 266

MQA 3 742 - 11 546

SASSETA 4 129 - 10 027

THETA 4 985 - 12 799

Provisioning Support

Ceta 264 264 -

Merseta 264 - 264

E Seta 264 - 264

MQA 264 - 264

Agriseta 264 - 264

Strategic Projects

FASSET(EC) 26 769 - -

FASSET(LP &KZN) 72 662 - -

SASSETA 20 970 6 951 28 079

DITSELA 6 840 2 143 234

Total 454 639 71 429 182 801

1 Expend�ture

Departments budget in terms of clearly defined programmes. The following tables summarise finalaudited expenditure by programme (Table 1.1) and by salary bands (Table 1.2). In particular, it providesan indication of the amount spent on personnel costs in terms of each of the programmes or salarybands within the Department.

Table 1.1 – Personnel costs by programme, 2007/ 08

Table 1.2 – Personnel costs by salary bands, 2007/08

The following tables provide a summary per programme (Table 1.3) and salary bands (Table 1.4), ofexpenditure incurred as a result of salaries, overtime, home owners allowance and medical assistance. Ineach case, the table provides an indication of the percentage of the personnel budget that was used forthese items.

1 April 2007 - 31 March 2008178

Annual Report

Programme Total votedexpenditure

(R’000)

Compensationof employees

(R’000)

Trainingexpenditure

(R’000)

Professionaland special

services(R’000)

Compensationof employees

as a percent oftotal

expenditure

Averagecompensationof employees

cost peremployee

(R’000)

Administration 328 384 64 441 1 547 262 396 19.62 155.6

Service Delivery 656 753 403 649 8 500 244 604 61.46 137.8

Employment and SkillsDevelopment Services/HumanResource Development

540 119 43 612 1 884 494 623 8.07 111.2

Labour Policy and LabourMarket Programmes

417 467 32 124 583 384 760 7.69 218.5

Social Insurance 5 898 - - 5 898 - -

Subtotal 1 948 621 543 826 12 514 1 392 281 27.91 140.1

Statutory 6 284 306 0 0 6 284 306 0 0

Total 8 232 927 543 826 12 514 7 676 587 6.53 140.1

Salary bands Personnel expenditure(R’000)

% of total personnel cost Average compensationcost per employee

Lower skilled (Levels 1-2) 109 - 109

Skilled (Levels 3-5) 154 936 28.48 85

Highly skilled production (Levels 6-8) 207 089 38.08 146

Highly skilled supervision (Levels 9-12) 134 379 24.70 258

Senior management (Levels 13-16) 30 781 5.66 540

Other 16 532 3.03 217

Total 543 826 140

Section 5Human Resources Management

Table 1.3 – Salaries, overtime, home owners allowance and medical assistance byprogramme, 2007/08

Table 1.4 – Salaries, overtime, home owners allowance and medical assistance bysalary bands, 2007/08

Programme Salaries Overtime Home ownersallowance (HOA)

Medical assistance

Amount(R’000)

Salariesas a % of

personnelcost

Amount(R’000)

Overtimeas a % of

personnelcost

Amount(R’000)

HOA as a% of

personnelcost

Amount(R’000)

Medicalassistanceas a % of

personnelcost

Programme 1: Administration 39 201 60.83 1 733 2.68 877 1.36 2 485 3.85

Programme 2: ServiceDelivery

285 151 70.64 557 0.13 8 798 2.17 24 502 6.06

Programme 3: Employmentand Skills DevelopmentServices/Human ResourceDevelopment

30 740 70.48 899 2.06 995 2.28 1 856 4.25

Programme 4: Labour Policyand Labour MarketProgrammes

23 118 71.96 125 0.38 307 0.95 1 053 3.27

Programme 5: SocialInsurance

- - - - - - - -

Total 378 210 69.54 3 314 0.60 10 977 2.01 29 896 5.49

Salary bands Salaries Overtime Home ownersallowance (HOA)

Medical assistance

Amount(R’000)

Salariesas a % of

personnelcost

Amount(R’000)

Overtimeas a % of

personnelcost

Amount(R’000)

HOA as a% of

personnelcost

Amount(R’000)

Medicalassistanceas a % of

personnelcost

Lower skilled (Levels 1-2) 681 0.12 2 - 24 - 73 0.01

Skilled (Levels 3-5) 113 123 20.80 1 150 0.21 4 814 0.88 13 199 2.42

Highly skilledproduction(Levels 6-8)

145 913 26.83 1 077 0.19 4 733 0.87 12 611 2.31

Highly skilledsupervision(Levels 9-12)

70 725 13.00 264 0.04 1 178 0.21 3 558 0.65

Senior management (Levels13-16)

11 952 2.19 - - 228 0.04 428 0.07

Other 35 816 6.58 821 0.15 - - 27 -

Total 378 210 69.54 3 314 0.60 10 977 2.01 29 896 5.49

Annual Report

1791 April 2007 - 31 March 2008

2 Employment and �acanc�es

The following tables summarise the number of posts on the establishment, the number of employees, thevacancy rate, and whether there are any staff that are additional to the establishment. This information ispresented in terms of three key variables: - programme (Table 2.1), salary band (Table 2.2) and criticaloccupations (Table 2.3). Departments have identified critical occupations that need to be monitored.Table 2.3 provides establishment and vacancy information for the key critical occupations of theDepartment.

The vacancy rate reflects the percentage of posts that are not filled.

Table 2.1 – Employment and vacancies by programme, 31 March 2008

*Posts of the Unemployment Insurance Fund and the Compensation Fund are included.

Table 2.2 – Employment and vacancies by salary bands, 31 March 2008


1 April 2007 - 31 March 2008180

Annual Report

Programme Number of posts Number of posts filled Vacancy rate%

Number of posts filledadditional to the

establishment

Administration 416 291 30 18

Service Delivery 3 577 3 181 11.1 0

Employment and Skills DevelopmentServices/Human Resource Development

392 342 12.8 6

Labour Policy and Labour MarketProgrammes

146 116 20.5 11

Social InsuranceUIF: 2 261CF : 671

UIF: 2 037CF : 597

10.2UIF: 20CF : 309

Total *7 463 6 564 12.0 364

Salary band Number of posts Number of postsfilled

Vacancy rate Number of postsfilled additional tothe establishment

Lower skilled (Levels 1-2) 1 1 0 0

Skilled (Levels 3-5) 3 706 3 342 9.8 323

Highly skilled production (Levels 6-8) 2 909 2 506 13.9 20

Highly skilled supervision (Levels 9-12) 769 648 15.7 16

Senior management (Levels 13-16) 78 67 14.1 5

Total *7 463 6 564 12.0 364

Table 2.3 – Employment and vacancies by critical occupation, 31 March 2008


Critical occupations Number of postsNumber of posts

filledVacancy rate

Number of postsfilled additional tothe establishment

Administrative related 2 613 2 422 7.3 312

Artisans 121 97 19.8 0

Cleaners 178 168 5.6 12

Client service officers 730 689 5.6 0

Communication related 34 28 17.7 1

Employment service practitioners 130 122 6.2 0

Financial related 579 511 11.7 0

Food services aid 19 19 0 0

Head of Department 1 0 100 0

Housekeepers, laundry and related 4 4 0 0

Human resource related 1 119 932 16.7 6

Information technology 23 15 34.8 0

Inspectors 1 274 1 015 20.3 0

Legal related 17 9 47.1 0

Librarian and related 1 1 0 0

Drivers 20 6 70 0

Logistical support and related 56 50 10.7 0

Medical practitioners 34 34 0 9

Messengers 93 84 9.7 13

National technical examiners 43 29 32.6 0

Production advisors 2 1 50 0

Minister 1 1 0 0

Security related 145 127 12.4 0

Secretarial related 79 64 19 0

Senior management 74 65 12.2 11

Trade labourers 73 71 2.7 0

Total *7 463 6 564 12.0 364

Annual Report

1811 April 2007 - 31 March 2008

3 Job e�aluat�on

The following table (Table 3.1) summarises the number of jobs that were evaluated during the yearunder review. The table also provides statistics on the number of posts that were upgraded ordowngraded.

Table 3.1 – Job evaluation, 1 April 2007 to 31 March 2008

The following table provides a summary of the number of employees whose salary positions wereupgraded due to their posts being upgraded. The number of employees might differ from the number ofposts upgraded since not all employees are automatically absorbed into the new posts and some of theposts upgraded could also be vacant.

Table 3.2 –Profile of employees whose salary positions were upgraded due to theirposts being upgraded, 1 April 2007 to 31 March 2008

1 April 2007 - 31 March 2008182

Annual Report

Salary band Number ofposts

Number ofjobs

evaluated

% of postsevaluatedby salary

bands

Posts upgraded Posts downgraded

Number% of postsupgraded

Number% of posts

downgraded

Lower skilled (Levels 1-2) 1 0 0 0 0 0 0

Skilled (Levels 3-5) 3 764 0 0 0 0 0 0

Highly skilled production(Levels 6-8)

2 850 2 0.1 3 100 0 0

Highly skilled supervision(Levels 9-12)

768 28 8.7 67 100 0 0

Senior ManagementService Band A

50 0 0 0 0 0 0

Senior ManagementService Band B

23 0 4.2 0 0 0 0

Senior ManagementService Band C

6 0 0 0 0 0 0

Senior ManagementService Band D

1 0 0 0 0 0 0

Total 7 463 30 0.9 70 100 0 0

Beneficiaries African Asian Coloured White Total

Female* 15 0 2 10 27

Male 25 2 2 14 43

Total 40 2 4 24 70

Employees with a disability 0 0 0 0 0

Table 3.3 – Employees whose salary level exceed the grade determined by jobevaluation, 1 April 2007 to 31 March 2008

Table 3.4 - Profile of employees whose salary level exceed the grade determined byjob evaluation, 1 April 2007 to 31 March 2008 (in terms of PSR 1.V.C.3)

4 Employment changes

This section provides information on changes in employment over the financial year.

Turnover rates provide an indication of trends in the employment profile of the Department. Thefollowing tables provide a summary of turnover rates by salary band (Table 4.1) and by criticaloccupations (Table 4.2). (These “critical occupations” should be the same as those listed in Table 2.3)

Table 4.1 – Annual turnover rates by salary band for the period 1 April 2007 to31 March 2008

Annual Report

1831 April 2007 - 31 March 2008

Occupation Number ofemployees

Job evaluationlevel

Remunerationlevel

Reason fordeviation

None 0 - - -

Total number of employees whose salaries exceeded the level determined by job evaluation in 2007/08

Percentage of total employment

Beneficiaries African Asian Coloured White Total

Female* 0 0 0 0 0

Male 0 0 0 0 0

Total 0 0 0 0 0

Salary band

Number ofemployees per

band as on 1 April2007

Appointments andtransfers into the

Department

Terminations andtransfers out of the

Department

Turnover rate%

Lower skilled (Levels 1-2) 18 0 4 22.2

Skilled (Levels 3-5) 4 029 210 474 11.8

Highly skilled production (Levels 6-8) 2 674 36 509 19.0

Highly skilled supervision (Levels 9-12) 684 11 39 5.7

Senior Management (Service Band A) 42 2 1 2.4

Senior Management (Service Band B) 21 0 1 4.8

Senior Management (Service Band C) 5 0 1 20

Senior Management (Service Band D) 2 0 1 50

Total 7 475 259 1 030 13.8

Table 4.2–Annual turnover rates by critical occupation for the period 1 April 2007 to31 March 2008

.Table 4.3 identifies the major reasons why staff left the Department.

Table 4.3 – Reasons why staff are leaving the Department

Occupation Number ofemployees per

occupation as on 1 April 2007

Appointments andtransfers into the

Department

Terminations andtransfers out of the

Department

Turnover rate%

Administrative related 3 262 83 812 24.9

Artisans 33 0 0 0

Cleaners 162 10 13 8.0

Client service officers 964 1 0 0

Communication related 30 2 5 16.7

Employment service practitioners 194 2 10 5.2

Financial related 520 23 34 6.5

Food services aid 16 1 2 12.5

Head of Department 1 0 1 100

Housekeepers, laundry and related 9 1 1 11.1

Human resource related 364 61 49 13.5

Information technology 3 0 1 33.3

Inspectors 779 0 7 0.9

Legal related 10 1 2 20.0

Librarian and related 1 0 0 0

Drivers 4 7 1 25

Logistical support and related 638 35 59 9.3

Medical practitioners 18 2 7 38.9

Messengers 77 6 5 6.5

Minister 1 0 0 0

National technical examiners 34 1 4 11.8

Production advisors 1 0 0 0

Security related 144 15 9 6.3

Secretarial related 73 0 3 4.1

Senior management 67 5 4 6.0

Trade labourers 70 3 1 1.4

Total 7 475 259 1 030 13.8

1 April 2007 - 31 March 2008184

Annual Report

Termination type Number % of total

Death 48 4.7

Resignation 230 22.3

Expiry of contract 583 56.6

Dismissal – operational changes 0 0

Dismissal – misconduct 21 2

Dismissal – inefficiency 0 0

Discharged due to ill-health 3 0.3

Retirement 37 3.6

Transfers to other Public Service departments 108 10.5

Other 0 0

Total 1 030 100

Total number of employees who left as a % of the total employment 7 463 13.8

Table 4.4 – Promotions by critical occupation

Table 4.5 – Promotions by salary band

Annual Report

1851 April 2007 - 31 March 2008

Occupation Employees as at1 April 2007

Promotions toanother salary

level

Salary levelpromotions as a% of employeesby occupation

Progressions toanother notchwithin a salary

level

Notchprogressions as

a % ofemployees by

occupation

Administrative related 3 262 86 2.6 2 461 75.4

Artisans 33 1 3 1 3

Cleaners 162 0 0 12 7.4

Client service officers 964 2 0.2 805 83.3

Communication related 30 1 3.3 7 23.3

Financial related 520 14 2.7 401 77.1

Employment service practitioners 194 8 4.1 128 66

Food services aid 16 0 0 2 12.5

Head of Department 1 0 0 0 0

Housekeepers, laundry and related 9 0 0 1 11.1

Human resource related 364 26 7.1 233 64

Information technology 3 0 0 0 0

Inspectors 779 0 0 0 0

Legal related 10 1 10 2 20

Librarian and related 1 0 0 1 100

Drivers 4 4 100 4 100

Logistical support and related 638 6 0.9 390 61.1

Medical practitioners 18 1 5.6 4 22.2

Messengers 77 1 1.3 7 9.1

Minister 1 0 0 0 0

National technical examiners 34 0 0 23 67.7

Production advisors 1 0 0 1 100

Security related 144 4 2.8 103 71.5

Secretarial related 73 6 8.2 62 84.9

Senior management 67 3 4.5 1 1.5

Trade labourers 70 0 0 0 0

Total 7 475 164 2.2 4 649 62.2

Salary band Employees1 April 2007

Promotions toanother salary

level

Salary bandspromotions as a% of employeesby salary level

Progressions toanother notchwithin a salary

level

Notchprogressions as

a % ofemployees by

salary band

Lower skilled (Levels 1-2) 18 0 0 0 0

Skilled (Levels 3-5) 4 029 9 0.2 2 446 60.7

Highly skilled production (Levels 6-8) 2 674 105 4.0 2 098 78.5

Highly skilled supervision (Levels9-12) 684 43 6.3 104 15.2

Senior management (Levels13-16) 70 7 10.0 1 1.4

Total 7 475 164 2.2 4 649 62.2

5 Employment equ�ty

The tables in this section are based on the formats prescribed by the Employment Equity Act, 55 of 1998.

Table 5.1 Total number of employees (including employees with disabilities) in eachof the following occupational categories as on 31 March 2008

Table 5.2 Total number of employees (including employees with disabilities) in eachof the following occupational bands as on 31 March 2008

1 April 2007 - 31 March 2008186

Annual Report

Occupational categories (SASCO)Male Female

TotalAfrican Coloured Indian White African Coloured Indian White

Legislators, senior officials andmanagers

33 5 2 7 14 0 0 1 62

Professionals 171 13 6 19 206 25 9 36 485

Technicians and associate professionals 540 73 41 86 421 55 13 200 1 429

Clerks 1 233 152 32 57 1 845 272 59 387 4 037

Service and sales workers 78 14 0 10 38 3 0 2 145

Skilled agriculture and fishery workers 0 0 0 0 0 0 0 0 0

Craft and related trades workers 13 0 0 14 2 0 0 1 30

Plant and machine operators andassemblers

15 2 0 0 1 0 0 0 18

Elementary occupations 178 9 1 6 142 17 0 5 358

Total 2 261 268 82 199 2 669 372 81 632 6 564

Non-permanent employees 116 1 0 3 229 9 2 4 364

Grand total 2 377 269 82 202 2 898 381 83 636 6 928

Employees with disabilities 73 8 6 19 55 6 4 25 196

Occupational bandsMale Female


Top management 5 1 0 0 1 0 0 0 7

Senior management 31 4 2 9 13 0 0 2 61

Professionally qualified andexperienced specialists and mid-management

247 32 19 67 194 21 6 68 654

Skilled technical and academicallyqualified workers, junior management,supervisors, foreman andsuperintendents

769 104 47 103 773 134 49 528 2 507

Semi-skilled and discretionary decisionmaking

1 225 152 18 40 1 545 227 39 86 3 332

Unskilled and defined decision making 2 0 0 0 1 0 0 0 3

Total 2 279 293 86 219 2 527 382 94 684 6 564

Table 5.3 - Recruitment for the period 1 April 2007 to 31 March 2008

Table 5.4 - Promotions for the period 1 April 2007 to 31 March 2008

Annual Report

1871 April 2007 - 31 March 2008






5 0 0 0 5 0 0 1 11


20 2 1 0 12 0 1 0 36


99 2 1 3 97 7 1 0 210


Total 125 4 2 4 114 7 2 1 259







36 4 2 15 31 3 0 15 106


50 4 0 1 38 3 0 4 100


6 1 0 1 9 1 1 1 20


Total 96 9 2 18 80 7 1 20 233


Table 5.5 - Terminations for the period 1 April 2007 to 31 March 2008

Table 5.6 Disciplinary action for the period 1 April 2007 to 31 March 2008

Table 5.7 Skills development for the period 1 April 2007 to 31 March 2008

6 Performance rewards

To encourage good performance, the Department has granted the following performance rewardsduring the year under review. The information is presented in terms of race, gender, and disability(Table 6.1), salary bands (Table 6.2) and critical occupations (Table 6.3).

1 April 2007 - 31 March 2008188

Annual Report






17 1 0 5 14 0 1 1 39


108 15 2 20 302 11 3 48 509


152 9 2 9 270 17 1 9 469


Total 284 25 4 35 591 28 5 58 1 030


Male FemaleTotal

African Coloured Indian White African Coloured Indian White

Disciplinary action 83 10 5 1 27 2 1 8 137

Occupational categories Male Female


Legislators, senior officials andmanagers

31 4 1 5 14 1 0 3 59

Professionals 201 24 15 60 200 19 7 37 563

Technicians and associate professionals 0 0 0 0 0 0 0 0 0

Clerks 1 764 250 61 86 1 629 282 45 350 4 467

Service and sales workers 0 0 0 0 0 0 0 0 0

Skilled agriculture and fishery workers 0 0 0 0 0 0 0 0 0

Craft and related trades workers 0 0 0 0 0 0 0 0 0

Plant and machine operators andassemblers

0 0 0 0 0 0 0 0 0

Elementary occupations 122 15 0 4 355 2 0 5 503

Total 2 118 293 77 155 2 198 304 52 395 5 592


Table 6.1 – Performance rewards by race, gender, and disability, 1 April 2007 to31 March 2008 for for the performance delivered during 2006/07

Table 6.2 – Performance rewards by salary bands for personnel below SeniorManagement Service, 1 April 2007 to 31 March 2008 for the performance deliveredduring 2006/07

Annual Report

1891 April 2007 - 31 March 2008

Beneficiary profile Cost

Number ofbeneficiaries

Total number ofemployees in

group

% of total withingroup

Cost (R’000) Average cost peremployee

African

Male 788 2 347 33.6 3 626 4 610

Female 1 008 2 779 36.3 3 775 3 745

Asian

Male 33 81 40.7 246 7 454

Female 40 90 44.4 180 4 500

Coloured

Male 110 288 38.2 532 4 836

Female 182 389 46.8 668 3 670

White

Male 108 200 54.0 847 7 842

Female 461 659 70.0 2 211 4 796

Employees with adisability

73 196 37.2 272 3 726

Total 2 803 7 029 39.8 12 357 4 408

Salary bands Beneficiary profile Cost


Number ofemployees

% of totalwithin salary

bands

Total cost R’000

Averagecost per

employee

Total cost asa % of the

totalpersonnel

expenditure

Lower skilled (Levels 1-2) 1 25 4.0 1 1 000 9.2

Skilled (Levels 3-5) 1 142 3 684 31.0 2 716 5 625 0.04

Highly skilled production (Levels 6-8) 1292 2 554 50.6 5 704 4 415 0.02

Highly skilled supervision (Levels 9-12) 354 679 52.1 3 450 20 742 0.15

Periodical remuneration 0 66 0 0 0 0

Total 2 789 7 008 39.8 11 871 4 255 0.01

Table 6.3 – Performance rewards by critical occupations, 1 April 2007 to 31 March2008 for the performance delivered during 2006/07

Table 6.4 – Performance related rewards (cash bonus), by salary band, for SeniorManagement, 1 April 2007 to 31 March 2008 for the performance delivered during2006/07

1 April 2007 - 31 March 2008190

Annual Report

Critical occupations Beneficiary profile Cost


Number ofemployees

% of totalwithin

occupation

Total cost Average costper employee

Administrative related 1 883 4 732 38.7 7 921 4 321

Artisans 1 1 100 3 3 000

Cleaners 90 218 41.3 171 1 900

Client service officers 2 8 25.0 21 10 500

Communication related 17 28 60.7 211 12 411

Employment service practitioners 82 175 46.9 441 5 378

Financial related 230 472 48.7 857 3 726

Food services aid 6 18 33.3 11 1 833

Head of Department 0 1 0 0 0

Housekeepers, laundry and related 1 5 20.0 2 2 000

Human resources related 154 362 42.5 815 5 292

Information technology 0 1 0 0 0

Inspectors 5 21 23.8 105 21 000

Legal related 5 5 100 67 13 400

Librarian and related 0 1 0 0 0

Drivers 8 18 44.4 19 3 375

Logistical support and related 206 489 42.0 701 3 402

Medical practitioners 1 13 7.7 12 12 000

Messengers 31 72 43.1 61 1 967

Minister 0 1 0 0 0

National technical examiners 14 28 50.0 62 4 428

Production advisors 1 1 100 21 21 000

Security related 35 161 21.7 75 2 142

Secretarial related 58 100 58.0 265 4 569

Senior management 15 74 3.3 503 34 000

Trade labourers 8 24 33.3 13 1 625

Total 2 803 7 029 39.8 12 357 4 408

Salary band Beneficiary profile Cost


Number ofemployees

% of totalwithin band

Total cost R’000

Average costper employee

Total cost as a %of the totalpersonnel

expenditure

Band A 8 45 2.2 231 2 887 0.19

Band B 4 21 0 181 4 525 0.39

Band C 2 6 0 74 370 0.15

Band D 0 1 0 0 0 0

Total 14 73 1.4 486 3 471 0.02

7 Fore�gn workers

The tables below summarise the employment of foreign nationals in the Department in terms of salarybands and by major occupation. The tables also summarise changes in the total number of foreignworkers in each salary band and by each major occupation.

Table 7.1 – Foreign workers, 1 April 2007 to 31 March 2008, by salary band

Table 7.2 – Foreign workers, 1 April 2007 to 31 March 2008, by major occupation

Annual Report

1911 April 2007 - 31 March 2008

Salary band 1 April 2007 31 March 2008 Change in employment

Number % of total Number % of total Number % change

Lower skilled (Levels 1-2) 0 0 0 0 0 0

Skilled (Levels 3-5) 0 0 0 0 0 0

Highly skilled production(Levels 6-8)

2 40.0 1 100.0 -1 -25.0

Highly skilled supervision(Levels 9-12)

1 20.0 0 0 -1 -25.0

Senior management (Levels13-16) (Contract)

1 20.0 0 0 -1 -25.0

Periodical remuneration 1 20.0 0 0 -1 -25.0

Abnormal appointment 0 0 0 0 0 0

Total 5 100.0 1 100.0 4 100.0

Major occupation 1 April 2007 31 March 2008 Change in employment

Number % of total Number % of total Number % change

Administrative office workers 3 60.0 1 100.0 2 50.0

Elementary occupations 0 0 0 0 0 0

Professionals and managers 2 40.0 0 0 2 50.0

Rank: committee member 0 0 0 0 0 0

Total 5 100.0 1 100.0 4 100.0

8 Lea�e ut�l�sat�on

The Public Service Commission identified the need for careful monitoring of sick leave within the PublicService. The following tables provide an indication of the use of sick leave (Table 8.1) and disability leave(Table 8.2). In both cases, the estimated cost of the leave is also provided.

Table 8.1 – Sick leave, 1 January 2007 to 31 December 2008

Table 8.2 – Disability leave (temporary and permanent), 1 January 2007 to 31 December 2007

Table 8.3 summarises the utilisation of annual leave. The wage agreement concluded with trade unions in the PSCBC in 2000 requires management of annual leave to prevent high levels of accruedleave being paid at the time of termination of service.

Table 8.3 – Annual leave, 1 January 2007 to 31 December 2007

1 April 2007 - 31 March 2008192

Annual Report

Salary bands Total days taken Average per employee Number of employeeswho took leave

Lower skilled (Levels 1-2) 41 21 2

Skilled Levels 3-5) 69 122 20 3 426

Highly skilled production (Levels 6-8) 60 138 22 2 718

Highly skilled supervision(Levels 9-12) 15 464 22 719

Senior management (Levels 13-16) 1 380 19 71

Total 146 145 21 6 936

Salary band Total days % days withmedical

certification

Number ofemployeesusing sick

leave

% of totalemployeesusing sick

leave

Averagedays per

employee

Estimated cost(R’000)

Lower skilled (Levels 1-2) 38 94.7 2 0 19 7

Skilled (Levels 3-5) 26 428.5 80.5 2 994 51.1 9 6 522

Highly skilled production (Levels 6-8) 20 917 81.3 2 303 39.3 9 8 485

Highly skilled supervision (Levels9-12) 3 754.5 81.3 525 9.0 7 3 181

Senior management (Levels 13-16) 163 68.1 40 0.7 4 337

Total 51 301 80.9 5 864 100.0 8 18 532

Salary band Total daystaken

% days withmedical

certification

Number ofemployees

usingdisability

leave

% of totalemployees

usingdisability

leave

Averagedays per

employee

Estimatedcost (R’000)

Skilled (Levels 3-5) 667 100 19 55.9 35 167

Highly skilled production (Levels 6-8) 494 100 14 41.2 35 198

Highly skilled supervision (Levels 9-12) 30 100 1 2.9 30 21

Total 1 191 100 34 100.0 35 386

Table 8.4 – Capped leave, 1 January 2007 to 31 December 2007

Table 8.5 – Leave payouts for the period 1 April 2007 to 31 March 2008

9 HIV and AIDS and Health Promot�on Programmes

Table 9.1 – Steps taken to reduce the risk of occupational exposure

Table 9.2 –Details of health promotion and HIV and AIDS programmes

Annual Report

1931 April 2007 - 31 March 2008

Salary bands Total days of cappedleave taken

Average number ofdays taken per

employee

Average capped leaveper employee as at31 December 2007

Skilled Levels 3-5) 269 4 22

Highly skilled production (Levels 6-8) 944 4 41

Highly skilled supervision (Levels 9-12) 215 5 49

Senior management (Levels 13-16) 2 2 47

Total 1 430 4 37

Reason Total amount (R’000) Number of employeesAverage payments per

employee

Capped leave payouts on termination of service for2007/08

2 538 90 2 448

Current leave payout on termination of service for2007/08

3 011 858 3 509

Total 5 549 948 5 957

Units/categories of employees identified to be at high risk of contracting HIV andrelated diseases (if any)

Key steps taken to reduce the risk

None

Question Yes No Details, if yes

1. Has the Department designated a member ofthe SMS to implement the provisions containedin Part VI E of Chapter 1 of the Public ServiceRegulations, 2001? If so, provide her/his nameand position.

X Mr Gangumzi TsengiweSenior Executive Manager: HRM.

2. Does the Department have a dedicated unit orhas it designated specific staff members topromote the health and well being of youremployees? If so, indicate the number ofemployees who are involved in this task and theannual budget that is available for this purpose.

X Two staff members are responsible for this task.R 2 million is the budget available for this purpose.

3. Has the Department introduced an employeeassistance or health promotion programme foryour employees? If so, indicate the keyelements/services of this programme.

X Creating awareness by writing articles on health and wellnessissues. Holding wellness days. Commemorating health andWellness events. Managing HIV and AIDS through VCTprogrammes. The Department also has a a peer educators’programme.

1 April 2007 - 31 March 2008194

Annual Report

Question Yes No Details, if yes

4. Has the Department established (a)committee(s) as contemplated in Part VI E.5 (e) ofChapter 1 of the Public Service Regulations,2001? If so, please provide the names of themembers of the committee and thestakeholder(s) that they represent.

X

National Employment Equity Consultative Forum whichconsists of the representatives from all the provincial offices ofthe Department.SEM: HRM Mr G TsengiweEM HRM Mr B GamaDesignated groups:Disabled Ms FD NdwandweNon-designated group:White Mr CJ MaraisRepresentatives from the Chief Directorates:Finance Ms B MatebesiCommunication Ms P MdluliEmployment Equity Mr T MutheloRepresentatives from the Directorates:SCM&OA Mr S MphuthiT&D Ms D ChiloaneEHWP Ms L SiphamboGDY Ms T MoetiChairperson/Delegate of each LEECF:Head Office Ms Z MdebukaEastern Cape Ms N TetyanaFree State Mr N NtshibaGauteng North Ms P MthethwaGauteng South Ms A MgqibiKwaZulu-Natal Mr E KhambulaLimpopo Mr M MabundaMpumalanga Ms N SophaziNorthern Cape Mr R GeswintNorth West Ms T MolekoWestern Cape Mr R CarrimCompensation Fund Ms R ManamelaUnemployment Insurance Fund Ms T MalulekeINDLELA Mr A MotshepeRepresentatives of Unions:NEHAWU Mr C MarulaPSA Mr A DlaminiPAWUSA Mr G SoetmelkSASAWU Mr M KweyamaSecretariat:Ms I GroenewaldMs G MaritzMs V Mokoena

5. Has the Department reviewed its employmentpolicies and practices to ensure that these donot unfairly discriminate against employees onthe basis of their HIV status? If so, list theemployment policies/practices so reviewed.

X

Under review are the following policies:� EAP policy � HIV and AIDS policy� OHS policy.

6. Has the Department introduced measures toprotect HIV-positive employees or thoseperceived to be HIV-positive fromdiscrimination? If so, list the key elements ofthese measures.

X

This is done through awareness programmes. Workshops tobe conducted on knowing your rights.

7. Does the Department encourage itsemployees to undergo voluntary counseling andtesting? If so, list the results that you have youachieved.

XThe Department encourages employees to undergo VCT. Theresponse to the Service Providers is good.

8. Has the Department developedmeasures/indicators to monitor & evaluate theimpact of its health promotion programme? If so,list these measures/indicators.

X Monitoring is done by reporting progress in the NationalEmployment Equity Consultative Forum.

10. Labour relat�ons

The following collective agreements were entered into with trade unions within the Department.

Table 10.1 – Collective agreements, 1 April 2007 to 31 March 2008

Table 10.2 – Misconduct and disciplinary hearings finalised, 1 April 2007 to 31 March 2008

Table 10.3 – Types of misconduct addressed at disciplinary hearings

Annual Report

1951 April 2007 - 31 March 2008

Total collective agreements 0

Outcomes of disciplinary hearings Number % of total

Correctional counselling 0 0

Verbal warning 0 0

Written warning 2 2.8

Final written warning 17 23.9

Suspended without pay 3 4.2

Fine 0 0

Demotion 0 0

Dismissal 21 29.6

Not guilty 3 4.2

Case withdrawn 25 35.2

Other (i.e. referring back, progressive discipline)

Total 71 100.0

Type of misconduct Number % of total

Absenteeism 15 15.8

Abuse of power 1 1.1

Alcohol abuse 1 1.1

Assault 1 1.1

Bribery 5 5.3

Dereliction of duty 4 4.2

E-mail abuse 1 1.1

Failure to declare IES monies 3 3.2

Fraud 19 20.0

Fruitless expenditure 2 2.1

Insubordination 5 5.3

Misrepresentation 12 12.6

Negligence 9 9.5

Sexual harassment 3 3.2

State vehicle misuse 14 14.7

Total 95 100.0

Table 10.4 – Grievances lodged for the period 1 April 2007 to 31 March 2008

Table 10.5 – Disputes lodged with councils for the period 1 April 2007 to 31 March 2008

Table 10.6 – Strike actions for the period 1 April 2007 to 31 March 2008

Table 10.7 – Precautionary suspensions for the period 1 April 2007 to 31 March 2008

1 April 2007 - 31 March 2008196

Annual Report

Number % of total

Number of grievances resolved 9 18

Number of grievances not resolved 41 82

Total number of grievances lodged 50 100

Number % of total

Number of disputes upheld 20 41.7

Number of disputes dismissed 15 31.3

Total number of disputes lodged 35 100.0

Total number of person working days lost 4 365

Total cost (R’000) of working days lost 682 296

Amount (R’000) recovered as a result of no work no pay 682 296

Number of people suspended 13

Number of people whose suspension exceeded 30 days 11

Average number of days suspended 120

Cost (R’000) of suspensions R 1 672 822

11 Sk�lls de�elopment

This section highlights the efforts of the Department with regard to skills development.

Table 11.1 Training needs identified 1 April 2007 to 31 March 2008

Annual Report

1971 April 2007 - 31 March 2008

Occupational categories Gender Number ofemployeesas at 1 April

2007

Training needs identified at start of reporting period

Learnerships18.1

Learnerships18.2

Skillsprogrammes

and othershort courses

Other formsof training

Total

Legislators, senior officialsand managers

Female 17 0 0 17 0 17

Male 53 0 0 41 0 41

ProfessionalsFemale 323 0 0 313 0 313

Male 220 0 0 210 0 210

Technicians and associateprofessionals

Female 0 0 0 0 0 0

Male 0 0 0 0 0 0

Clerks Female 3 680 0 0 3 351 0 3 351

Male 2 824 0 0 2 361 0 2 361

Service and sales workersFemale 0 0 0 0 0 0

Male 0 0 0 0 0 0

Skilled agriculture andfishery workers

Female 0 0 0 0 0 0

Male 0 0 0 0 0 0

Craft and related tradesworkers

Female 0 0 0 0 0 0

Male 0 0 0 0 0 0

Plant and machine operatorsand assemblers

Female 0 0 0 0 0 0

Male 0 0 0 0 0 0

Elementary occupationsFemale 166 0 0 152 0 152

Male 192 0 0 161 0 161

SubtotalFemale 4 186 0 0 3 833 0 3 833

Male 3 289 0 0 2 773 0 2 773

Total 7 475 0 0 6 606 0 6 606

Table 11.2 - Training provided 1 April 2007 to 31 March 2008

* Some officials attended more than one training initiative.

12 Injur�es on duty

Table 12.1 – Injury on duty, 1 April 2007 to 31 March 2008

1 April 2007 - 31 March 2008198

Annual Report

Occupational categories Gender Number ofemployeesas at 1 April

2007

Training needs identified at start of reporting period

Learnerships18.1

Learnerships18.2

Skillsprogrammes

and othershort courses

Other formsof training

Total

Legislators, senior officialsand managers

Female 17 0 0 18 0 18

Male 53 0 0 41 0 41

ProfessionalsFemale 323 0 0 263 12 275

Male 220 0 0 300 10 310

Technicians and associateprofessionals

Female 0 0 0 0 0 0

Male 0 0 0 0 0 0

Clerks Female 3 680 0 0 2 306 91 2 397

Male 2 824 0 0 2 161 80 2 241

Service and sales workersFemale 0 0 0 0 0 0

Male 0 0 0 0 0 0

Skilled agriculture andfishery workers

Female 0 0 0 0 0 0

Male 0 0 0 0 0 0

Craft and related tradesworkers

Female 0 0 0 0 0 0

Male 0 0 0 0 0 0

Plant and machine operatorsand assemblers

Female 0 0 0 0 0 0

Male 0 0 0 0 0 0

Elementary occupationsFemale 166 0 0 362 0 362

Male 192 0 0 141 2 143

SubtotalFemale 4 186 0 0 2 949 103 3 052

Male 3 289 0 0 2 643 92 2 735

Total 7 475 0 0 5 592 195 5 787

Nature of injury on duty Number % of total

Required basic medical attention only 46 83.6

Temporary total disablement 6 11.0

Permanent disablement 2 3.6

Fatal 1 1.8

Total 55 100.0

13 Ut�l�sat�on of consultants

Table 13. 1 - Report on consultant appointments using appropriated funds

Annual Report

1991 April 2007 - 31 March 2008

Project title Total number of consultantsthat worked on the project

Duration: work days Contract value in Rand

Asset Management andSupport Services

One Company 6 months R5 788

KPMG-Incorporation of PublicPrivate Partnership(PPP) intothe Financial Statements

One Company 6 weeks R74 883

Conducting of Phase IIInvestigation into irregularitiesat Compensation Fund

One Company-5 specialists 4 weeks R1 075 020

Consultants to assist Salariessection in clearing of suspenseaccounts

One Company - 5 consultants 40 days R228 732

Organisational Climate Surveyfor Department of Labour

One Company-5 consultants 70 days R896 396

Research, Monitoring andEvaluation (RME) Agenda

One Company 240 days R12 000 000

International Review of theLabour Market

One Company 60 days R290 195

Welfare ResearchOne Company - 4

consultants120 days R279 585

Labour Market Review One Company 60 days R28 000

Unskilled Labour One Company 7 days R29 000

Business Case for the NationalSkills Fund

One Company – 8 consultants 365 days R497 838

Total number of projects Total individual consultants Total duration : work daysTotal contract value in

Rand

11 27 consultants were specified 1 102 R21 405 389

1 April 2007 - 31 March 2008200

Table 13.2 - Analysis of consultant appointments using appropriated funds, in termsof Historically Disadvantaged Individuals (HDIs)

Table 13.3 - Report on consultant appointments using donor funds

Table 13.4 - Analysis of consultant appointments using donor funds, in terms ofHistorically Disadvantaged Individuals (HDIs)

Annual Report

Project title Percentage ownership byHDI groups

Percentage management byHDI groups

Number of Consultants fromHDI groups that work on the

project

Business Case for the NationalSkills Fund

26% 55% 3

Research, Monitoring andEvaluation (RME) Agenda

HSRC: Government owned HSRC: Government owned HSRC: Government owned

International Review of theLabour Market

0 0 0

Labour Market Review 0 0 0

Unskilled Labour 0 0 0

Welfare Research 30 % 60 % 1

Project title Total Number of consultantsthat worked on the project

Duration: work days Donor and contract value inRand

None 0 0 0

Total number of projects Total individual consultants Total duration: work days Total contract value in Rand

None 0 0 0

Project title Percentage ownership byHDI groups

Percentage management byHDI groups

Number of consultants fromHDI groups that work on the

project

None 0 0 0

content page report of the auditor-general 129 employment factories annual financial statements for...

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